The Flanders-China Chamber of Commerce organized an exclusive webinar on “China: Charting a Course through Turbulent Times” on 25 June 2026.
Ms. Gwenn Sonck, Executive Director, Flanders-China Chamber of Commerce, welcomed the participants to the webinar and introduced the topic and the speaker, Ms. Allison Mandra, Senior Economist at KBC Bank, a founding member of the Flanders-China Chamber of Commerce (FCCC). As we all know, doing business has become more complex, Ms. Sonck said. China's economic slowdown is the most important challenge for EU companies in China, following the global economic slowdown, intense competition, and geopolitical tensions. At the same time, recent findings from the European business community in China suggest that confidence is starting to rebound for the first time in several years. In a period of global economic slowdown and geopolitical turbulence, many European companies increasingly see China as a more stable and predictable market. At the same time, China remains a vital market for European business, and according to a recent survey of European companies in China, around 75% of the respondents consider China to be more efficient than the rest of the world. Around 94% of survey participants also consider China very important for inputs, underlining China's continued importance in global value chains. China's growing innovation capacity is an even more important reason why China has become so important for our member companies. Many European companies are increasingly in China for China, but also in China for the world to innovate, develop new products, and learn from a highly competitive environment.
Ms. Allison Mandra, Senior Economist, KBC Bank gave a presentation on China’s economic outlook and current challenges. The World Cup football now taking place serves as a very good illustration of many of the challenges and opportunities facing the Chinese economy today. Among the countries that are absent is China, which is interesting in the context of China's ambition. In 2016 China launched a medium to long-term development plan, with the hopes that it would turn China into a football superpower by 2050. The goal was to eventually host and then win a World Cup. This is about more than just sports, it’s about the soft power ambition of China, it’s about China competing on the stage with other major powers in the world's most popular sport.
There are also some echoes of the Belt and Road Initiative, of China wanting to have more influence abroad. The plan started to develop by Chinese investing abroad in other football leagues, and partnerships with other countries trying to develop their football programs. A lot of investment went into the Chinese Super League, buying up some star football players. At one point, it was starting to actually cause some concern among other football leagues. A former manager, now the FIFA Chief of Global Football Development, said China looked to have the financial power to move a whole European league to China. You can see some echoes of the concerns about China's competitiveness vis-a-vis Europe and in other industries outside of sports as well. A major reason was that the money funneled into it was backed by real estate developers.
One of the teams in the Chinese Super League, Guangzhou FC, was actually bought by Evergrande in 2010. It was one of the most successful teams in the Chinese Super League, but actually was kicked out last year because of financial problems and the failure to repay debt. So there are clear parallels with the broader economy. What we've seen is that China's development in global football has not really moved forward from where it was 10 years ago. That doesn't mean that there's no hope. The goal of the development plan is in 2050 and that is still some time in the future. It really highlights that China has these very important levers that it can use for a lot of its ambitions and goals, including with economic opportunities, particularly coming from state-backed aid and where the state wants to direct investment and firepower. But this isn't fail proof either and is something that investors and economists need to be aware of when they're looking at the Chinese economy.
Before diving into everything happening in the Chinese economy today, it's important to take a step back and look at the background context. Recent years have been marked globally by heightened uncertainty and geopolitical risk. Looking back at 2020, you have the pandemic, and then the post-pandemic supply chain disruptions causing increased inflation. You have trade wars coming from the U.S. towards China. You have real wars, some of which have been very important in terms of the economic impact and supply chain impact. In the background you have the Chinese real estate crisis that's still ongoing. The Chinese Economic Policy Uncertainty Index has been quite elevated in recent years compared to historic levels. What's quite interesting is that the Chinese economy has actually done OK, as normally a lot of uncertainty and risk is not good for business confidence. GDP growth in China actually stabilized somewhat around the 5% level in the context of a very long structural slowdown.
In the pre-pandemic period the expectation was that Chinese growth would be going down to 4% or even closer to 3%. Instead, we've seen this stabilization with some volatility in the pandemic years. The stabilization actually hides some very important changes in the Chinese economy, particularly in terms of where the growth drivers are and what's replacing what. Consumption was OK in 2023, but kind of weak since then. Investments were also quite weak, especially if you look at it from a historical perspective, not contributing as much as usual except for the last quarter. Net exports have been a very strong contributor to overall growth, especially in the past couple of years.
But before looking at those contributors to growth, it is important to look at what is happening with the real estate sector, which is having an important impact on what's driving Chinese growth. So you still see prices on a monthly basis declining and investment in real estate being quite weak. When real estate peaked, investment in the sector was 13% of GDP, which since the downturn has more than halved. There is no meaningful turnaround yet in prices or investment in the real estate sector.
Consumption has so far not been able to recover from the real estate crisis. Even before that, consumption needed to pick up as a driver to make growth more balanced and stable long term. Between 2000 and 2019 you could see an increase in the contribution of consumption to GDP growth, but in the context of slowing growth. Consumption growth was not a driver, it was just picking up the slack. After the pandemic and the real estate crisis, consumption has been quite sluggish. If we look at retail sales as a proxy, that sluggishness in recent years was even going towards zero and stalling growth. What explains this? Consumption in China has been a structural problem for quite some time. Part of the reason is that household savings tend to be very high, especially compared to other major economies. Household bank deposits have been above trend since 2020. The demographics in China are not very favorable for potential growth and cause a decline in China's saving ratio.
A lot of what is holding back consumption is real estate. Over the past year or so, there was a steady uptick in confidence that was very encouraging. The real estate boom led to very high household debt accumulation in China. The household debt to GDP climbed well above those of emerging markets, more towards higher income economies. The problem there is that China's income level is still at a higher middle income level. Studies show that when household debt reaches 60% of GDP, it can have a negative impact on growth. China's household debt to GDP ratio is just around 60%, which petered off since the real estate crisis took hold. Prices started to decline and households are not taking out any more mortgages. You can see this semi balance sheet recession where households are not taking out more debt because of their high indebtedness, holding back consumption. There is a lot of household wealth tied up in the real estate sector. Other factors include the decline in real income growth. Labor market indicators have been quite weak overall.
Moving on to the investment side, China's investment as a share of GDP has been declining for some time, and this started well before the real estate crisis. Policymakers have been aware of and concerned by inefficient investments by local governments and SOEs for some time. The pressure to meet certain government requirements, growth targets and priorities has sometimes led to inefficient investment and over-indebtedness of local governments and SOEs, not just in real estate, but in other sectors as well. With the anti-involution efforts last year, we have seen a decline in investment. While it was declining in real estate, high-tech sector investment, particularly in manufacturing, was increasing. This is a long term plan from the Chinese policymakers to pursue industrial upgrading. You see a much stronger investment compared to the total in high-tech sectors, services and manufacturing. Investment in China's electric vehicles has been a very important part of the investment policy of late. This industrial upgrading is becoming an important part of China's economy. If you look at industrial production overall in year-over-year terms, you can see clear outpacing from the high-tech sector. If it wasn't for this strength in industrial production being upheld by the high-tech sector, growth would have probably been a lot weaker in recent years than it has been. This highlights the imbalances in the Chinese economy. As production is high, but demand is low, production needs to be sent abroad.
This brings us to the story of China's export resilience. Exports of three new products have really surged: solar panels, electric vehicles and lithium-ion batteries. Looking at solar cell exports, you see strong volume growth, especially in 2023, but the actual dollar value was declining. This price impact is also playing an important role in China's export resilience. As prices were quite low, China gained market share in solar exports. As energy security becomes more important for countries around the world in the aftermath of multiple energy crises in recent years, China's dominance in these sectors could provide a very important structural support for growth going forward. This is one of the reasons why China's exports have remained very resilient despite the multiple trade wars that have been directed at China. Tariffs did have an impact on trade with the U.S. as China's exports declined quite sharply last year. But it was more than offset by higher exports to other regions of the world, especially to Africa. Is some of this just trade diversion, sending China's exports to Africa to route them to the U.S. to try to avoid higher tariffs? This can't fully explain it. At first there was this clear correlation between China's exports to Africa and U.S. imports from Africa. But then we saw a pretty strong divergence as U.S. imports from Africa started to decline but China's exports to Africa continued to climb. So there is definitely much more going on than trade diversion to avoid tariffs. There is also the strength of China's exports at low prices and high demand for those high-tech products playing a role.
China's external strength has come somewhat at the expense of others. From a purely economic view, increased trade is good. But in the real world, there is concern when a country starts to lose market share to another country, which can lead to rising protectionism. Since 2018, advanced economies, particularly the EU, have lost some market share as China has gained in one industry in particular: auto manufacturing. Previously, China imported more cars from the EU than it exported to the EU. This started to change after 2020 with China's exports of vehicles to the EU increasing, many being electric vehicles. It is no surprise that protectionist concerns from politicians are rising as China's trade balance with the EU is increasing. Recently, there has been some uptick in imports to China from the EU. But the widening trade surplus, particularly in goods, is quite remarkable and making other countries more wary. The EU has launched multiple investigations into questions of Chinese state aid and of dumping at low prices. The rhetoric in the EU is heating up, but there's no clear consensus on how this should be addressed. Some EU countries are wary of the mistakes made by the U.S. in trying to confront China. The clear importance of China's dominance in critical minerals and rare earths changes the ability to just put tariffs on Chinese products without retaliation. It is hard to say how this is going to play out because it is a political consideration.
Even if the EU wants to raise protectionism and try to protect its industries from China, actual decoupling is not very straightforward. What have the trade wars that the U.S. waged against China actually achieved? During the first trade war in 2018, there was a big impact on trade between China and the U.S. That bounced back pretty quickly, especially during the pandemic, as there was high demand for goods coming from China, outweighing those tariffs and the negative impact. In the current trade war, it is still up in the air how things are going to play out between China and the U.S. There is a temporary truce. In terms of FDI, there is a flatlining in recent years since decoupling started. From China's perspective, they still need to address the excess capacity problem, hopefully without killing growth. You see that the rising industrial production capacity in key sectors, combined with low demand in China, has contributed to low prices and very low inflation, and has increased the pressure to export that excess production.
There also is this longstanding question about the value of China's currency. The renminbi has long been targeted as a currency that is undervalued. That is part of the reason why China's export sector is so strong and resilient. The long run appreciation of the renminbi tapered off in 2015 and picked up a little bit over the last year. China's diverging inflationary trends with the rest of the world in the post-pandemic period has contributed to a depreciating real effective exchange rate. In recent weeks, there have been some changing expectations regarding global interest rates. The U.S. Federal Reserve (Fed) is expected to hike interest rates at least once this year. So there is this growing interest rate differential as well, which could hold back some of the appreciation pressure, at least in the short term. Recently, we have seen stronger inflationary pressures in China. A lot of this is due to the producer prices and geopolitical situation that caused energy prices to increase sharply. There wasn't a very strong impact from energy prices onto the headline CPI figure in China, but there was on producer prices.
There are opportunities ahead. AI and automation is where all the hype is now. China does have an edge, locked in fierce competition in terms of AI development with the U.S. In AI developments and automation, certainly in terms of the installation of robots, China is ahead of many other economies. But innovation is not just a China-specific story. Staying at the frontier of the innovation, as well as developing more of the chip industry in China, and focusing on self-sufficiency in what is an increasingly protectionist and geopolitically uncertain world, is a key priority.
A lot can still be done in terms of fiscal policy reform. For a long time, problems with local government debt financing vehicles were highlighted. What comes in focus is the imbalance between the local and central government budgets: local governments running deficits and the central government running surpluses, and the inefficiency in the way revenues are collected and expenditures are done. China is in the process of trying to clean up some of the local government financing vehicle debt, but transparency there is still limited, so risks probably remain. There are also still links with the financial sector, regional banks in particular. But fiscal reforms that would better realign the central and local government revenues and expenditures could allow the government to focus on improving consumption and focusing on efficient investment that doesn't lead to weaker inflation and deflationary pressures.
There are a lot of challenges and opportunities on both sides. Slowing growth does make the goal of reaching high income levels more complicated. We see Chinese GDP slowing to 4.6% in 2026 and 4.1% in 2027 because of some of these imbalances and the pressure that will come on the export side, although exports will likely continue to play a very important role in China’s growth. Industrial upgrading can continue, especially in the context of automation, AI and the climate transition here in Belgium in the middle of a heat wave. China does have this edge with its three new technologies that will support it going forward. Local government financing vehicle debt has moved to the background as a major issue, but is not gone. Household debt is still something that needs to be addressed, as it is still holding back consumption.
A Q&A session concluded the webinar.
