Chinese economy challenges for 2025 and the automotive industry

The Chinese economy is heading into 2025 with a range of pressures that could weigh on both growth and stability. The automotive industry is not insulated from this backdrop.

Concerns are coming from several directions at once: the property-sector crisis, slower economic expansion, high debt levels, an ageing population and, finally, trade and geopolitical tensions.

One signal is that domestic consumption in China is not meeting the Beijing Government’s expectations. Towards the end of last year, a wide-ranging economic stimulus package was even announced.

All of these topics were covered in depth in the latest episode of Auto Radio, a podcast from Automotive Reason, where we marked Chinese New Year, which began today, 29 January:

The Chinese economy and the automotive industry in 2025

In practical terms, that stimulus package was an ambitious attempt to hit 5% economic growth in 2024 - a modest pace for an emerging economy. The cooling in activity is most visible in indicators such as household consumption, softer private investment and an ongoing contraction in the property sector.

At car dealerships, for instance, a price war is unfolding. To move production, pricing and sales margins have repeatedly been squeezed - a trend made worse by Tesla’s price cuts. In total, more than 4000 dealerships shut their doors, with cumulative losses exceeding €23 billion.

European car brands’ exposure to the Chinese market

And if Chinese brands have reasons to worry, European brands (especially German ones) do as well. This chart shows how exposed the German brands are to China’s domestic market:

That exposure is part of the reason brands such as BMW have joined Chinese manufacturers in the European courts in an effort to halt EU tariffs on electric cars produced in China - an issue that looks set to stay in focus in the months ahead.

French brands are the least affected. Stellantis has only a limited footprint in the Chinese market, and Renault’s presence is almost non-existent - with Geely’s stake in Horse, the Renault Group’s internal-combustion engine division, as the exception that proves the rule.

Exporting remains essential

In recent years, the Beijing Government has tried to reshape the country’s economic model: boost domestic consumption and reduce reliance on exports. But with the property sector slowing - the main engine of the Chinese economy, and the factor that has delivered double-digit growth since the 1990s - households are pulling back on spending and exporting remains essential.

To manage the downturn in property, which undermines household wealth and consumer confidence, the Government has tried to limit the flow of homes entering the market. At the same time, to encourage spending, China’s authorities allowed banks to cut reserve requirements to expand credit to firms and consumers.

Against this backdrop, vehicle exports become even more important. They help manufacturers clear factory output and reduce exposure to swings in the domestic market.

The 10 Chinese manufacturers that exported the most vehicles in 2024 were:

• Chery: 1 144 000
• SAIC: 929 000
• Changan: 536 000
• Geely: 532 000
• Great Wall Motor: 453 000
• BYD: 433 000
• BAIC: 274 000
• Tesla China: 260 000
• JAC: 249 000
• Dongfeng: 246 000

If we look at BYD, for example, it is already the world’s third-largest manufacturer, with more than four million units sold in 2024, yet 90% of its sales still take place in the Chinese market.

A giant with feet of clay?

In the 1980s and 1990s there was another emerging economy that seemed poised to overtake the rest of the world: Japan. However, a huge property bubble forced the Japanese economy to abandon that trajectory.

In this episode of Auto Radio, a podcast from Automotive Reason, we devoted a segment to this subject:

When Japan’s property bubble burst at the start of the 1990s, the financial system was badly shaken. At the time, Japan’s automotive industry was also enjoying a period of prosperity and optimism.

Today, China faces a situation that resembles Japan in the 1980s, with the property sector under deep strain. Giant companies such as Evergrande and Country Garden are among the most visible symbols of those difficulties.

China has built vast infrastructure and entire cities with low occupancy, creating excess capacity across many areas, including property and industry. However, unlike what happened in Japan, the Chinese Government has been able to manage property supply. By partially controlling the amount of housing coming to market, it can avoid a fall in prices.

For all these reasons, CAAM – the China Association of Automobile Manufacturers – is forecasting a slowdown in the growth of China’s vehicle exports, and some analysts are anticipating difficulties both domestically and overseas.

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