The Chinese economy at the turning point: if even giants like BYD stire

From the world market leader to production stop: How Byd's crash of China's economic problems reveals

The Chinese economy, celebrated as an unstoppable growth machine for a long time, shows increasingly questionable cracks in the foundation. What was once considered the economic miracle of the 21st century now reveals structural weaknesses that could shake the entire system. It is particularly alarming that even industry leaders such as the electric car manufacturer BYD, which recently considered a symbol of China's technological rise, are now fighting with considerable difficulties.

The despair at BYD is symptomatic of a profound crisis that goes far beyond individual companies. The electric auto -carant, who developed from unknown battery manufacturer into the world's largest producer of electric vehicles in a few years, has to drastically throttle its production in recent months. In at least four of the seven works in China, the manufacturing capacities were reduced by up to a third. Night shifts were painted, planned extensions were placed on ice. This development is particularly noteworthy, since BYD replaced the German Volkswagen Group as the market leader in China in 2023 and even overtook Tesla as the largest electric car manufacturer worldwide in 2024.

The numbers speak a clear language: While BYD spent an ambitious sales destination of 5.5 million vehicles for 2025, reality shows a different picture. In the first quarter of 2025, the company's sales only grew by a lean 5.5 percent, while the Chinese electric market market increased by over 45 percent. The situation for the inventory is particularly dramatic: at the end of May 2025, over 340,000 unsuccessful BYD vehicles were piled up on the dealers' farms-a stock of more than three months.

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The ruinous price war and its consequences

In desperation, BYD used drastic measures. In May 2025, the company lowered the prices of 22 models by up to 34 percent. The popular Mini-Hatchback Seagull is now offered for the equivalent of just under $ 7,800-a price that is far below the production costs of many western manufacturers. This aggressive pricing policy triggered a chain reaction: competitors like Geely, Chery and Saic-GM followed up, a ruinous price war broke out.

The effects of this discount battle are devastating. Profit margins melt away, suppliers get under enormous pressure. BYD needed an average of 275 days to pay their suppliers - the suppliers in fact become involuntary lenders. Analysts estimate that BYD's true debt is around 39 billion euros, while only 3.3 billion euros are officially shown. The difference creates due to the systematic delay of payments to business partners.

Wei Jianjun, CEO of the car manufacturer Great Wall Motor, already warned of a development that is reminiscent of the catastrophic real estate crisis in May. He spoke of an ever -grandy of the auto industry that has not yet exploded. His words turned out to be prophetic: the situation intensified in such a way that even the Chinese government had to intervene. The party newspaper Renmin Ribao wrote of disordered price wars that destroyed profits across the entire supply chain.

The structural problems of the Chinese economy

The crisis in the automotive industry is only the tip of the iceberg. China's economy fights with fundamental structural problems that have built up over the years. The investment -driven growth model of the past decades is increasingly reaching its limits. With an investment rate of over 40 percent of gross domestic product - exceptionally high in international comparison - it is becoming increasingly difficult to invest capital profitably.

Total factor productivity, a measure of the efficiency of the economy, has been continuously falling in China since at least 2014. This indicates increasing allocative and technological inefficiencies. Significant overcapacities have built up in many industries of the processing trade. The Chinese auto industry can produce almost twice as many vehicles as actually sold. The factories run with average occupancy of only 49.5 percent.

The official economic growth of 5 percent for 2024 is questioned by many experts. Independent analysts such as those of the Rhodium Group research company estimate that the actual growth was only between 2.4 and 2.8 percent. The discrepancy between official figures and economic reality is getting bigger.

The real estate crisis as a fire accelerator

In parallel to the crisis in the automotive industry, the real estate crisis, which has been smoldering for years. The sector, which once made up to a third of the Chinese economic output, is in a downward spiral. House prices have been falling for 21 months in a row. Analysts from Goldman Sachs expect prices to drop by a further 10 percent by 2027 - in addition to the declines of 20 percent.

The crisis began in 2021 with stricter loan regulations that were supposed to reduce the financial risk in the sector. What was intended as a cautious regulation developed into a surface burn. The bankruptcy of the real estate giant Evergrand was only the beginning. Millions of apartments that have already been sold remain unfinished. The trust of consumers is shaken, many households are faced with negative equity - the value of their property is below the outstanding mortgage debt.

The government desperately tries to stabilize the sector. A 300 billion Yuan difficult purchase program is intended to enable local governments to acquire unsold properties and convert them into social housing. But these measures act like a drop on the hot stone. The revenue of local governments from land sales, their most important source of financing, collapsed by 16 percent in 2024.

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The weakening internal demand

A central problem of the Chinese economy is weak domestic demand. Consumers keep their money together, unsettled by the real estate crisis and a youth unemployment of 16 percent. Consumer prices are stagnating, sometimes there is even deflation - an alarm signal for an economy that is dependent on growth.

This consumption restraint not only affects Chinese companies. European companies in China have been reporting on the worst mood for years. Only 29 percent of the companies surveyed by the EU Chamber of Commerce are still optimistic about their growth prospects in China for the next two years. The bitter price war in many industries presses the profits that are fading.

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The international dimension: EU China relationships under tension

The economic turbulence in China has far -reaching international effects. The EU China summit planned for the end of July takes place in an atmosphere of increasing tensions. The trade relationships, with an annual volume of over 700 billion euros actually of enormous importance for both sides, are burdened by mutual accusations and protectionist measures.

The EU has imposed tariffs of up to 45 percent on Chinese electric vehicles to protect domestic industry from the flood of subsidized imports. China reacted with counter -tariffs to European products, including up to 34.9 percent to brandy imports. The escalation spiral continues: export controls to rare earths, restrictions on medical devices, mutual allegations of unfair trading practices.

EU Commission President Ursula von der Leyen spoke of a new China shock, since the People's Republic exuberant the world markets with subsidized overcapacity. The system is clearly manipulated. At the same time, she emphasizes that a complete decoupling of China would neither be efficient nor effective. Europe continues to focus on goal -oriented commitment, but demands fair competitive conditions.

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The export pressure as a valve

With the overheated home market and weak internal demand, the pressure on Chinese companies is growing to export their overcapacity abroad. 20 percent of all vehicles produced in China are already increasing. BYD not only builds works in Turkey and Hungary, but also plans a factory in Germany.

But the export markets are getting narrower. The United States has practically closed the market with 100 percent tariffs on Chinese electric cars. Japan and Korea could follow. The EU remains one of the few major sales markets, but here too the resistance to the import flood grows.

The government intervenes - with questionable success

In view of the intensified crisis, the Chinese government was forced to act. The bosses of over a dozen car manufacturers were quoted to Beijing. The message was clear: no more sales under cost, ending with the practice of the zero-kilometer used car, fair treatment of suppliers. 17 carmakers then promised to limit their payment periods to a maximum of 60 days.

But these interventions look like trying to extinguish a forest fire with watering cans. The structural problems - overcapacity, too many manufacturers, lack of trust from consumers - remain unresolved. Of the 169 car manufacturers in China, more than half have less than 0.1 percent. Analysts expect brutal market adjustment in which only five to seven dominant brands will survive.

The technological challenge

China's answer to the growth weakness is the promotion of new productive forces through technological innovation. But this strategy is also full of contradictions. The striving for technological independence means a conscious waiver of the advantages of international division of labor. If traditional industries are to be kept in the country despite a lack of competitiveness if preliminary work has to be produced for political reasons instead of importing them cheaper, efficiency suffers.

The increasingly small -scale state planning and control of research and innovation could weaken creativity and productivity in the long term. International companies and scientists are put off by politics geared towards Chinese strategic interests. The technology transfer, from which China benefited for decades, dried up.

A lost decade?

The parallels to Japan's lost decade after the real estate bubble bursting in the 1990s are obvious. Overcapacity, lazy loans, deflationary tendencies, falling productivity - all of these symptoms now also show China. But there are important differences: China is still a developing country with a lower per capita income, urbanization is progressing, the potential for catching up can still be theoretically.

The question is whether the political leadership is willing to carry out the necessary painful reforms. A real market adjustment would mean mass layoffs and company bankruptcies - politically delicate in a system that obtains its legitimacy from economic success and social stability. The alternative, continuing with government subsidies and market interventions, threatens to only delay and enlarge the problems.

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Global effects

The crisis in China has far -reaching global consequences. German automobile manufacturers, who benefited from the Chinese market for decades, record double -digit sales returns. The market share of foreign brands in China fell from 64 percent in 2020 to only 30.6 percent. Even with combustion engines, a domain of western manufacturers long, Geely now sells more than Toyota.

The overcapacity in China threatens to destabilize global markets. When Chinese manufacturers export their surplus production at dumping prices, producers worldwide. Commercial conflicts tighten, protectionist measures are increasing. The vision of an integrated global economy gives way to a patchwork of merchant blocks and customs barriers.

The end of an era

The Chinese economy is at a historic turning point. The model of investment -driven growth, which China made from a developing country to the second largest economy in the world in just four decades, has had its day. The symptoms of the crisis - from Byd's production throttling to the real estate bubble to the weak internal demand - are an expression of deeper structural problems.

Desperation, even among industry leaders like BYD, shows that nobody is immune to systemic upheavals. The attempt to secure market shares through aggressive price cuts only tightens the crisis. The overcapacities in the automotive industry are symptomatic of an economy that produces too much and consumes too little.

The coming years will show whether China will create the difficult transition to a more sustainable, consumption -driven growth model. The alternative - a long phase of stagnation with increasing social tensions - would not only have serious consequences for China, but for the entire global economy. The upcoming EU China summit will be an important test for whether there is still room for constructive cooperation despite all the tensions. Time is forced, because if even giants like BYD falter, there is more at stake than just the future of individual companies - it is about the stability of the entire global economic system.

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Konrad Wolfenstein

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