Weak Chinese domestic market: China's economic power between regional dynamics and global challenges
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Published on: September 13, 2025 / Updated on: September 13, 2025 – Author: Konrad Wolfenstein
Weak Chinese domestic market: China's economic power between regional dynamics and global challenges – Image: See details below
Export giant, consumer dwarf: China's economy is in a dangerous dilemma
China's uneven boom: Why 4 super provinces carry the country while the rest lag behind
China's economy resembles a colossus on clay feet, painting a picture full of contradictions. While the country underpins its position as a global economic power with record exports and a historic trade surplus, a closer look reveals profound structural weaknesses within. Chronically weak domestic consumption, far below the global average, makes the world's second-largest economy dangerously dependent on global demand. This dependence is exacerbated by massive regional inequality: Only a handful of wealthy coastal provinces such as Guangdong and Jiangsu act as engines of growth, while large parts of the country, particularly in the west, are lagging far behind economically – with income disparities that dwarf even those in Germany. At the same time, Beijing is struggling with a simmering real estate crisis that threatens the banking system and a demographic time bomb caused by a shrinking working-age population. In light of these challenges, the government is attempting to counteract them with an ambitious "dual circulation" strategy and massive investment in "killer technologies" to boost domestic demand and achieve technological independence. China's economic future is thus at a crucial turning point that will shape not only the country itself but the entire global economy.
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Regional economic drivers and the role of the leading provinces
In short: China's economy is characterized by a weak domestic market with low consumer demand and structural problems, while exports remain very strong and drive a large part of economic growth. This means that China's economy is heavily dependent on foreign demand and international markets, as domestic consumption is significantly lower than in comparable countries.
The Chinese economy is largely driven by a few high-performing regions, while others lag significantly behind. The four eastern provinces of Guangdong, Jiangsu, Shandong, and Zhejiang alone generate almost 35 percent of the national gross domestic product, demonstrating the enormous concentration of economic power in the coastal regions. Guangdong leads with a GDP of over 129 trillion yuan and, despite a growth rate of 4.1 percent in the first quarter of 2025, which was below the annual target, shows an improvement of 0.6 percentage points compared to the previous year.
Shanghai improved impressively by two places, moving from 11th to 9th place nationwide. With a GDP of 1.273 trillion yuan in the first quarter, the metropolis achieved growth of 5.1 percent, exceeding its annual target by 0.1 percentage points. This development underscores the adaptability of economically strong regions and their ability to adapt to changing conditions.
However, regional differences are significant. Per capita income in Beijing reached 190,313 yuan, while in Gansu it was only 41,864 yuan—a difference of almost fivefold. These disparities are even greater than those between the economically weakest and strongest German states. The western provinces, including Tibet and Qinghai, together generated only 6.3 percent of economic output, highlighting the uneven development.
Convergence between regions is occurring very slowly. Studies show that it could take half a century for the gap in economic performance between administrative districts to even be halved. These structural imbalances are further exacerbated by demographic trends, as younger workers concentrate in affluent coastal cities and provinces, while central and western provinces struggle with out-migration and declining birth rates.
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Export economy versus domestic market
In 2024, China achieved a new record high in exports of the equivalent of €3.4 to €3.5 trillion, representing growth of 5.9 percent over the previous year. This export boom led to a historic trade surplus of $992 billion. Exports are growing significantly faster than global trade overall, with exports of Chinese manufactured goods increasing by over ten percent in volume.
At the same time, however, imports are stagnating at just 1.1 percent growth, indicating weak domestic demand. This development highlights the dilemma of the Chinese economy: exports serve as the mainstay, while domestic consumption continues to weaken. Trade data show that China exports strongly in terms of volume, while the value per exported unit often declines – an indication of state-subsidized overcapacity.
Domestic consumption accounts for less than 40 percent of annual economic output, roughly 20 percentage points below the global average. The geographical shift in consumption behavior is interesting: While consumption growth is stagnating in the metropolises of Shanghai, Beijing, Guangzhou, and Shenzhen, smaller cities show a higher propensity to consume. Shanghai recorded only 0.5 percent consumption growth, while cities such as Wenzhou, Jinhua, Taizhou, and Quanzhou were significantly above the national average of five percent.
The government has recognized the need to diversify away from export dependence. The "dual circulation" strategy aims to stimulate domestic consumption and reduce export dependence. This policy reflects China's realization that it will no longer be able to rely as heavily on trade in the next two decades as it did in the previous two.
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China's economy at a crossroads: export strength meets domestic crisis
Economic stability in global comparison
China's economy has both strengths and significant weaknesses that undermine its stability. The country achieved its growth target of five percent in 2024, with government stimulus boosting the economy at the end of the year. Economic growth accelerated to 5.4 percent in the fourth quarter and to 1.6 percent quarter-on-quarter.
Nevertheless, China faces structural challenges. The real estate crisis is putting a significant strain on the economy, as the real estate sector accounted for roughly a quarter of GDP at its peak, and housing represented nearly 80 percent of private assets. In June 2024, 40 banks filed for bankruptcy within a week—an unprecedented event in China for more than 30 years. The Chinese shadow banking system manages assets between three and twelve trillion US dollars and is heavily invested in real estate projects.
Demographic developments pose a further risk to stability. China's population shrank in 2022, 2023, and 2024, with the working-age population already declining. The labor force between 15 and 64 years of age has peaked and is expected to decline sharply from 2030 onward. This will cause the labor force's contribution to GDP to become negative in a few years.
International comparison reveals China's changing position. The United States overtook China as Germany's most important trading partner in 2024, for the first time since 2016. Trade volume between Germany and China amounted to €246 billion, while with the United States it reached €255 billion. German exports to China fell by 7.6 percent in 2024, the second consecutive year following a decline of 8.8 percent in 2023.
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New development strategies and technological orientation
China is pursuing an ambitious strategy for technological self-reliance, which was underlined in the Third Plenum Document of July 2024. The strategy focuses on building a modern industrial system driven by “new quality productive forces” in high-tech sectors such as semiconductors, artificial intelligence, aerospace, and biomedicine.
The concept of "dual circulation" forms the core of the new economic strategy. It envisions two economic cycles: an internal one that can satisfy Chinese demand and consumption in a coherent manner, and an external one that complementarily optimizes the internal one through imports and exports. This strategy aims to increase China's economic independence while simultaneously increasing its asymmetric dependence on foreign countries.
Eleven key high-tech zones have established a collaborative network to promote AI industry innovation, including Beijing's Zhongguancun, Shanghai's High-Tech Zone, and zones in Shenzhen, Chengdu, and other cities. China is striving for "killer technologies" to strengthen the existential dependence of international industrial value chains on China and develop deterrents against supply disruptions.
The Belt and Road Initiative complements this strategy by creating new trade routes and markets. The project enables China to utilize its extensive foreign exchange reserves for investment, develop new markets for industrial overcapacity, and contribute to the internationalization of Chinese companies. Securing new transport routes for trade and diversifying energy sources are key components of a strategy geared toward long-term stability.
From export miracle to domestic crisis: How regional differences are slowing China down
Despite impressive export success, China's economy faces significant challenges. Youth unemployment is just under 19 percent, and for the first time in decades, Chinese workers believe that the younger generation may not fare as well as those currently in the workforce. Geopolitical tensions with the West are leading to significant capital outflows and an exodus of global companies.
The housing crisis continues, with 400 million square meters of vacant housing and household debt at 145 percent of disposable income. Despite government support programs totaling over 200 billion yuan and interest rate cuts by the People's Bank of China to 1.5 percent, structural weakness persists.
China's Gini coefficient was officially 0.466 in 2022, although independent studies indicate values above 0.6—significantly higher than Germany's 0.29. This inequality is exacerbated by demographic trends, as central and western provinces face labor shortages and declining productivity.
For 2025, experts forecast GDP growth of 4.5 to 4.8 percent, which is below the official target of 5 percent. The government is increasingly focusing on consumer incentives, with the term "consumption" mentioned 31 times in official documents, compared to 21 times in the previous year. A "special action plan" to vigorously boost consumption is intended to stimulate domestic demand.
China's economic development thus presents a complex picture: While a few coastal regions act as economic engines and achieve impressive export success, the country struggles with structural problems such as the real estate crisis, demographic challenges, and weak domestic demand. The new "dual circulation" strategy and the focus on technological self-reliance demonstrate the will to transform, but its success depends on overcoming existing challenges.
List of regions in China (Top Ten / Total 31) by GDP and percentage share
List of regions in China (Top Ten / Total 31) by GDP and percentage share – Image: Xpert.Digital
The complete list of all Chinese regions—consisting of provinces, autonomous regions, and municipalities directly under the central government—shows their ranking by gross domestic product (GDP) for 2024, converted into yuan and US dollars, as well as their percentage share of total Chinese GDP. Guangdong ranks first with a GDP of 14,163 billion yuan (US$1,989 billion) and a share of 10.50%, followed by Jiangsu with 13,701 billion yuan (US$1,924 billion, 10.16%) and Shandong with 9,857 billion yuan (US$1,384 billion, 7.31%). Zhejiang ranks fourth with 9.013 billion yuan (1.266 billion US dollars, 6.68%), followed by Sichuan (6.470 billion yuan; 908 billion US dollars; 4.80%) and Henan (6.359 billion yuan; 893 billion US dollars; 4.71%). Hubei ranks seventh with 6.001 billion yuan (843 billion US dollars; 4.45%), while Fujian ranks eighth with 5.776 billion yuan (811 billion US dollars; 4.28%). Shanghai follows with 5.393 billion yuan (757 billion US dollars; 4.00%) and Hunan with 5.323 billion yuan (747 billion US dollars; 3.95%). Anhui reached 5.063 billion yuan (US$711 billion; 3.75%), Beijing 4.984 billion yuan (US$700 billion; 3.69%), and Hebei 4.753 billion yuan (US$667 billion; 3.52%). Shaanxi followed with 3.554 billion yuan (US$499 billion; 2.63%), ahead of Jiangxi with 3.420 billion yuan (US$480 billion; 2.54%) and Liaoning with 3.261 billion yuan (US$458 billion; 2.42%). Chongqing recorded 3.219 billion yuan (US$452 billion; 2.39%), and Yunnan 3.153 billion yuan (US$443 billion; 2.34%). Guangxi reached 2.865 billion yuan (US$402 billion; 2.12%) and Inner Mongolia 2.631 billion yuan (US$369 billion; 1.95%), followed by Shanxi with 2.549 billion yuan (US$358 billion; 1.89%). Guizhou reached 2.267 billion yuan (US$318 billion; 1.68%) and Xinjiang 2.053 billion yuan (US$288 billion; 1.52%). Tianjin recorded 1.802 billion yuan (US$253 billion; 1.34%), Heilongjiang 1.648 billion yuan (US$231 billion; 1.22%), and Jilin 1.436 billion yuan (US$202 billion; 1.06%). Gansu reaches 1.3 trillion yuan (183 billion US dollars; 0.96%), Hainan 794 billion yuan (111 billion US dollars; 0.59%), Ningxia 550 billion yuan (77 billion US dollars; 0.41%), Qinghai 395 billion yuan (55 billion US dollars; 0.29%), and Tibet (Xizang) 276 billion yuan (39 billion US dollars; 0.20%). Total Chinese GDP for 2024 is 134.908 billion yuan, equivalent to approximately 18.943 billion US dollars. Percentages are based on 2024 official exchange rates (CNY 7.12 = 1 USD). Regions such as Hong Kong, Macau, and Taiwan are not included in this statistic from the cited Wikipedia source.
China's dangerous imbalance: consumption collapses and no one knows what will happen next
### China's consumption conundrum: Why citizens are holding on to their money despite growth ### Beijing is pumping billions into the economy – but the Chinese are simply not buying ### The big fear: Why China's weak domestic market is slowing down the entire economy ### More than just the real estate crisis: The real problem behind China's weak consumption ###
The Chinese domestic market is considered weak, especially compared to expectations and the government's long-term growth targets.
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Causes of weakness
The main weakness of the internal market lies in private consumption:
- Income growth is low, many households are saving more and spending less on leisure, education, health and consumer goods.
- The weak development of the real estate market over the past few years has led to a loss of sense of wealth and uncertainty; as a result, many people lack the motivation to make major purchases.
- At less than 40 percent, the consumption ratio to GDP is exceptionally low by international standards.
Political measures and perspectives
The government is making intensive efforts to stimulate domestic consumption:
- In 2025, comprehensive programs to promote consumption (e.g. subsidies for purchases and interest rate subsidies for loans) as well as measures to increase social benefits were launched.
- Nevertheless, many analysts consider the measures to be insufficient or unsustainable, as structural problems such as weak social protection or job insecurity remain unresolved.
Economic performance and forecasts
- According to official figures, the Chinese economy will grow by around 4.4 to 5.2 percent in 2025, with exports being a key growth driver while the domestic sector lags behind.
- Forecasts for the coming years point to continued restraint in private consumption and slower growth.
China's domestic market is weak, despite targeted stimulus measures. Consumption is growing less dynamically than overall GDP, and structural deficits in confidence, social security systems, and the real estate sector are slowing development – a fundamental turnaround is still pending.
Details about the image (China map): RP Chine administrative.svg: Ternoc this file: Furfur (https://commons.wikimedia.org/wiki/File:Volksrepublik_China_administrative_Gliederung.svg), "People's Republic of China administrative divisions", edited, https://creativecommons.org/licenses/by-sa/4.0/legalcode
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