From Growth Engine to Pressure Point: China's Economic Shift and It's Global Effects

For two decades China has powered global growth, contributing towards roughly one-third of the world's GDP expansion. That era is fading, as a combination of property weakness, aging demographics and weaker productivity is pushing China into a structurally lower growth path. The World Bank notes that potential growth is now on a “declining trend” unless deep reforms are implemented to shift the economy away from debt-fueled investment towards productivity and consumption.

Why the slowdown is structural

In the short term, headline growth is still positive, but underlying drivers look fragile. China's long property boom has reversed, leaving developers over-leveraged and households being cautious. Allianz Trade describes this as China's “great crunch”: a policy-induced squeeze on credit that exposed an overbuilt, speculative housing sector and left local governments heavily indebted.

At the same time, the working-age population is shrinking and productivity gains from rapid urbanization have largely been exhausted. IMF analysis projects that without major reforms, China's potential growth could fall towards 3-4 per cent by the end of the decade, far below the double-digit rates that once reshaped global demand.

Trade channels and shifting partners

The first channel this slowdown spills over globally is trade. The export chart provided shows year-on-year growth in China's exports by destination. We are able to see a clear pattern: exports to Africa and ASEAN rebound strongly in 2025, while exports to the US remain firmly negative. The EU and Latin America lie between these extremes, with modest and volatile growth.

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This divergence reflects changes in both economics and politics. Weak demand and “de-risking” strategies in advanced economies have curbed purchases of Chinese manufactured goods. Meanwhile, Beijing is pivoting towards the Global south. The Atlantic Council documents how China is deepening trade and investment ties with African economies to secure commodities, new exports and diplomatic influence, even as its domestic growth slows.

For countries who are involved in selling goods and intermediate inputs to China's investment cycle, slower Chinese fixed-asset investment is painful. Recent FT reporting notes show that investment fell by its fastest pace since the pandemic in late 2025, hitting machinery exporters in Europe and industrial suppliers in East Asia.

Business confidence and corporate strategy

Global firms operating in China are having to adjust to this new environment. A 2025 survey by the EU Chamber of Commerce found that European companies now rank China’s domestic slowdown as a bigger challenge than the US-China trade war, with over 70 percent reporting that doing business in China has become more difficult over the past year.

This is reshaping corporate strategy as many multinationals are slowing new investment, diversifying production towards southeast Asia, or “China-plus-one” models. Smaller European firms, which lack scale to absorb volatility, have reported weak sales and subdued expectations for profitability.

Commodities, Africa and financial spillovers

Commodity exporters are another group directly exposed to China's deceleration. During the boom years, Chinese demand underpinned a super-cycle in metals and energy. Allianz Trade estimates that a sustained Chinese growth slowdown could shave several tenths of a percentage point from growth in commodity-exporting economies as demand for iron ore, copper and coal normalizes.

For Africa, the picture is nuanced. The Atlantic Council emphasizes that China has been a key source of infrastructure finance and a major buyer of African raw materials; slower Chinese growth reduces demand for these exports and may limit the scale of future mega-projects. At the same time, rising Chinese wages and geopolitical tensions are encouraging some manufacturers to relocate labour-intensive production. Countries that can offer reliable infrastructure and stable policy may benefit from this search for alternative production bases.

Financial markets are already pricing in a world where China is no longer the single dominant growth engine. Equity investors have marked down valuations of highly China-exposed sectors such as luxury goods. This is supported by FT’s coverage that highlights how firms like Louis Vuitton and Estée Lauder have been hit by weaker Chinese consumer spending and property-driven wealth effects. Portfolio flows into broader emerging markets are also affected as investors reassess the role of Chinese assets in their risk budgets.

A New Global Growth Landscape

China’s slowdown is therefore more than a temporary dip in the business cycle. It marks a transition towards a different growth model, with lower trend growth and greater emphasis on self-reliance and geopolitical resilience. For Europe, Africa and commodity exporters, the challenge is to adapt to a world in which Chinese demand is less explosive and more selective.

Some of the slack will be taken up by other emerging markets, notably India and parts of ASEAN, but no single economy is likely to replicate China’s scale. Understanding the structural nature of China’s slowdown, and its varied spillovers across trade, investment and finance, is essential for policymakers and investors seeking to navigate the next decade of global macroeconomic change.