Recently, the Chinese economy has been persistently sluggish. It appears that the stimulus measures implemented by the Chinese Communist Party in the past have failed to achieve the desired effects.
Given the soft state of the Chinese economy, European airlines have decided to reduce or cancel flights to and from China. Despite the Chinese government’s claims of taking more measures to help the economy, it seems that further economic assistance measures may not be implemented until after March. At that time, the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC), also known as the “Two Sessions,” will be held annually as the rubber-stamp legislative bodies of the Chinese Communist Party.
The latest batch of economic data related to China, while not entirely negative, fails to generate much enthusiasm. The unemployment rate has decreased since last spring but stubbornly remains at 5.0% of the total workforce. Industrial profits in November fell by 7.3% compared to the same period last year, marking the fourth consecutive month of decline.
New residential construction in November 2024 fell by about 23% compared to November 2023. Business investments in equipment and infrastructure showed slight growth. However, the 3.4% increase in November 2024 compared to the previous year mainly reflected government initiatives to boost capacity growth in what it deems as key industries, while private enterprise investment spending remained nearly stagnant.
Despite this, the November 2024 indices for construction and business activities managers indicated an overall contraction, with the manufacturing sector showing little to no growth, even weaker than in October. Consumer spending, although up by 4.8% compared to the previous year, still disappointed.
In November 2024, exports from China grew by approximately 6.7% compared to the same period a year earlier, which may seem positive on the surface. However, this growth likely only reflects U.S. buyers stockpiling before the tariff policies of then-U.S. President Donald Trump’s new administration took effect. Export shipment volumes have already dropped compared to October.
While these data still point towards actual growth, they fall far short of the Chinese government’s target of 5.0% actual growth set for 2024. The outlook for 2025 appears increasingly challenging. Even if President Trump restrained impulses to impose new, higher tariffs on Chinese goods, the continued accumulation of inventory in response to worrisome tariffs is expected to lead to reduced purchases of Chinese goods later this year. There are rumors that the Chinese government will set a 5.0% actual growth target for 2025. As it stands now, achieving this target seems highly improbable.
In response to the economic downturn in China, major European airlines have begun to cut back on flights to and from China. Scandinavian Airlines based in Stockholm, Sweden, recently announced that the flight from Shanghai to Copenhagen, Denmark, was the last one in early November 2024 until further notice. Other European airlines such as Virgin Atlantic, British Airways, Lufthansa, and LOT Polish Airlines have also made similar announcements.
With the successive release of such news, now only seven European airlines operate between China and Europe, halving the number from 2019. While Chinese airlines have partly filled the void left by European routes, flights between China and Europe have declined by about 16% since 2019.
It is certain that part of the flight reductions is cost-related. In response to European sanctions related to the Ukraine conflict, Russia now prohibits European airlines from using its airspace. Due to forced detours, flight times between Europe and China have increased from 11 hours when using Russian airspace to 15 hours. These airlines’ costs have increased by 10% to 15% primarily due to additional fuel consumption. Chinese airlines have an edge over European counterparts as they can use Russian airspace without facing this additional burden.
While relative costs may explain some of the current situations, the reduction in flight volume primarily reflects a decrease in seat demand, to some extent due to declining tourist and mainly business travelers’ demand. This is in line with the fact that trade between Europe and China declined by 3.3% in just the first three quarters of 2024. Perhaps more crucial than the trade drop is the dwindling interest of European investors in the Chinese-controlled economy, leading to a reduction in business travel.
The statistics not only record the current economic predicament but also provide a foresight into the future. European decisions in trade, investment, and travel activities indicate that 2025 may pose more challenges for the Chinese economy than the preceding two years. If rumors hold true that the Chinese government has set a 5.0% actual growth target for this year, swift actions will be required.
However, there are also speculations that the Chinese government will not take any action until the National “Two Sessions” in March this year. Various signs indicate that achieving the economic growth target for 2025 will be even more challenging than the past year.
[End of the news article]