As the global economic landscape continues to shift, China’s growth potential remains a hot topic among investors. A recent webinar hosted by Standard Bank brought this issue into focus, featuring insights from Jeremy Stevens, the bank’s Asia economist based in Beijing for over a decade.

With China navigating its complex trade tensions with the US and embracing a bold new export strategy, Stevens shared his insider perspective on the world’s second-largest economy.

Here are the key takeaways from this engaging discussion that shed light on China’s evolving economic narrative.

Trade tensions

Tensions between the US and China have been escalating over the past year, with a full-on trade war erupting after US President Donald Trump’s Liberation Day on 2 April 2025, when he imposed reciprocal tariffs on the US’s trading partners.

At the height of the tit-for-tat trade war, the US imposed a 145% tariff rate on Chinese exports, while China imposed a 125% tariff rate on US goods. These rates have since been reduced, and Stevens expects them to settle “somewhere around 30% to 45%”.

He says that despite the Chinese government being “reasonably confident that it can metabolise the direct impact” of the trade war, it expects the feud to cut up to 1.5 percentage points from the country’s GDP, which is in line with most academic studies.

Stevens says he expects tensions between the two giants to persist.

“My base case, for what it’s worth, is that we are going to continue to see economic decoupling between the United States and China, a weakening in the economic independence between these two countries, which is likely to continue to encompass trade, but also widen to services, investment, technological, and other areas of collaboration.

“And I think that this reflects on both sides a sort of shift towards economic nationalism, highlighting the importance of strategic autonomy, particularly in areas deemed critical to national security and technological leadership.

“I think that that’s just a new normal that we’re going to have to continue to live in or a world in which we’re going to have to continue to navigate,” says Stevens.

A new era of manufacturing

China’s export strategy has evolved over the years, with the country no longer flooding developed markets with low-cost goods but instead emerging as “Germany 2.0”.

Since the pandemic, it’s been trying to develop a global leadership in nascent technologies and sectors where there hasn’t been a global leadership found.

“And to that end, they’ve mobilised significant resources towards those parts of the economy that they consider advanced manufacturing, and we’ve seen a massive surge in lending into that sector and also investment by players in that sector as they’ve built more and more capacity, driving costs lower and lower through economies of scale, so they’ve been using that to drive their competitiveness,” says Stevens.

He adds that China has been trying to build a resilient, domestic-anchored industrial base that can scale outwards, particularly towards the Global South, where the price point is lower.

“And this has been the name of the game for a number of years now, and what we’re seeing in the escalated trade war is Beijing doubling down on those markets where it believes it has goodwill and strategic leverage. Now, clearly, Africa is critical to that.”

Since the mid-2010s, China has focused on deepening ties with the Global South, particularly Africa.

“Every year, the foreign minister’s first visit is to Africa. And so what you’re seeing is that these diplomatic chords are playing a crucial role in boosting Chinese exports.

“For example, about 55% of Ghana’s imports come from China, over 50% of Tanzania’s, over 40% of Kenya’s, and over 35% of Nigeria’s. So, really, they are gaining significant market share,” says Stevens.

What China is doing on the domestic front

Domestically, China is facing several headwinds.

First, there are growing concerns about deflation. “Throughout the past 24 months, investments in manufacturing capacity have been running very fast. Last year, it was about ¥32 trillion in new fixed asset investment from the manufacturing sector, and clearly, maintaining that growth is becoming much more difficult in an environment where one of your larger trading partners is no longer purchasing stuff from you,” says Stevens.

Producer price inflation, which closely tracks exports, has been negative for two years, highlighting the deflationary pressure. If manufacturing investment keeps growing at 4-6% in 2025/2026, the risk of overcapacity and deflation could intensify, says Stevens.

Second, domestic consumption has been weak due to several factors.

“Income growth has been falling – not necessarily across the board, but certainly not keeping up with nominal GDP growth, which is itself growing at very low levels,” Stevens says.

Another key factor is inequality. “The wealthiest 20% of income earners drive overall consumption,” Stevens explains, and their influence on savings and investment is disproportionately large.

While lower-income households appear relatively optimistic, higher-income individuals, particularly those in cities like Beijing and Shanghai, feel less confident about the future.

“Those people are saving more and spending less,” he adds, making it difficult for authorities to boost domestic demand, as the group with the greatest purchasing power is holding back.

The collapsing property sector is another factor impacting consumption and an area of concern for the overall economy. “President Xi [Jinping] has made it clear that the property market absorbed too many resources for too long, and that model was unsustainable,” says Stevens.

The sector, which once made up around 23% of GDP, has now shrunk to about 16-17% and is heading towards 10%. While this structural decline is set to continue, its negative impact on GDP is gradually easing.

Stevens notes that signs of stabilisation in tier-one cities could have a meaningful impact: if wealthy households “start to see their real estate assets no longer declining and start to stabilise that could result in an upward surprise in the consumer and retail sales story because, like I’ve already mentioned, they have a disproportionately large share in shaping consumption.”

On the other hand, Chinese Premier Li Qiang has emphasised the need to boost lower-income households’ consumption as a means of increasing overall consumption, specifically focusing on elderly care, childcare, culture, and tourism.

Consequently, the People’s Bank of China recently launched a ¥500 billion relending facility to support these sectors.

Stevens says that various policymakers have also been calling for more targeted subsidies, such as vouchers for low-income households, to broaden the income of lower-income families and boost consumption.
Other measures the Chinese government is exploring to stabilise the economy include:

• Prioritising the ‘four stabilities’: jobs, firms, markets, and expectations.
• Shifting the focus from financial sector resilience to direct economic support. “They recognise [supporting] the real economy could come at the expense of the financial system. But they believe that in the trade war, they’re going to have to bite the bullet,” says Stevens.
• More fiscal packages could also be introduced later in the year if the data starts to deteriorate as the impact of the trade war comes into effect.

If you’re interested in tapping into China’s growth story, Shyft has various ETFs that give investors exposure to the country. Remember to consult a financial advisor before making investment decisions.

Watch the full webinar here.