The Evolving Digital Landscape – Five Trends We’re Watching at the Start of 2025
China Business Set for Pivotal Year of Risk and Reward
January 2025
This article is produced by our China team based in Beijing.
The start of 2025 finds China’s business outlook clouded by uncertainty, against a backdrop of rising geopolitical risks and anxious headlines. We’ve written about what to expect on the policy front here, here, and here.
At the same time, we also expect to see significant shifts in healthcare, technology, and consumer behaviour, underpinned by ongoing fiscal reforms and the evolving global political landscape.
These dynamics present both opportunities and challenges for global leaders, in what looks set to be a pivotal year for businesses in China.
Strengthening consumer demand through stimulus and fiscal reforms
Faced with turbulent trade relations ahead, China looks set to repeat its 4.7% growth of last year. As outlined at the Central Economic Work Conference (CEWC), China’s 2025 economic policy emphasises boosting domestic demand and household spending amid global uncertainties. Key measures include trade-in programmes for durable goods, consumer vouchers, interest rate cuts, and tax adjustments.
A higher fiscal deficit target of 4-5%, coupled with decentralised approvals for local infrastructure investments, is expected to unlock substantial stimulus potential. Meanwhile, the People’s Bank of China (PBOC) is expected to implement reserve requirement ratio (RRR) cuts and trim benchmark interest rates to stimulate borrowing and credit growth.
Fiscal reforms will likely focus on consolidating local government debt and improving resource allocation across provinces. Enhanced local pensions and welfare payments aim to boost consumer spending among lower-income households. If the economy shows resilience, tax cuts may be phased out, with adjustments to personal income tax and VAT strengthening government revenues. However, the introduction of a property tax remains unlikely due to sensitivities in the real estate sector.
High-tech innovation and the green economy
Innovation remains central to China’s strategy, with AI, machine learning, and 5G driving global advancements. Government-backed initiatives aim to position China as a leader in autonomous vehicles, healthcare, and high-end manufacturing. The rise of generative AI underscores this focus, exemplified by China’s Deep Seek V3, which has garnered attention for outperforming global competitors like OpenAI in certain benchmarks at significantly lower costs. This success may herald the emergence of other Chinese “black horses” poised to make similar breakthroughs.
China’s commitment to carbon neutrality further underscores its green economy agenda, emphasising sustainable development through green finance, ESG investments, and eco-friendly practices. The electric vehicle (EV) industry and renewable energy sectors, which have grown by over 35% annually, remain economic cornerstones despite challenges like overcapacity. China’s international collaborations in green industries are also accelerating, with rising demand for green technology in markets like Saudi Arabia driving surges in Chinese exports and investments.
Health and wellness: A growing market
China’s health and wellness market, valued at $683 billion in 2024, continues to expand, driven by rising incomes, evolving preferences, and the “Healthy China 2030” strategy. Gen Z and millennials are buying fitness apps, mental health platforms, and personalised nutrition services.
Foreign investment is increasingly significant. The government’s decision to allow wholly foreign-owned hospitals in nine major cities and the opening of markets for cell and gene therapy reflect efforts to modernise healthcare. Additionally, policies encouraging commercial health insurance companies to shoulder more responsibilities signal a growth in high-end healthcare. With an aging population and a heightened focus on well-being, the sector offers vast opportunities for investors.
New consumer models and changing consumer behaviour
China’s consumer landscape is rapidly evolving, with social commerce, the pet economy, and the guochao trend (preference for goods produced in China) reshaping market dynamics. Social commerce accounted for 13.6% of e-commerce in 2023 and reached $509 billion in 2024. Platforms like WeChat and Douyin facilitate this growth, attracting global enterprises to engage with dynamic Chinese consumers through live-streaming and digital storefronts.
The pet economy, valued at RMB 279.3 billion ($40 billion) in 2024, is projected to grow 30% to RMB 361.3 billion ($50 billion) by 2026, driven by demand for premium products. Meanwhile, the guochao movement, celebrating domestic brands like Huawei and Xiaomi, continues to erode the market share of foreign competitors.
Lower-tier cities are emerging as vital growth hubs, offering untapped opportunities for global brands like Sam’s Club and Starbucks. Younger generations, diverging from traditional aspirations tied to housing and global brands, prioritise wellness, hobbies, and pet ownership, echoing cultural shifts seen in Japan in recent decades.
Challenges and opportunities for businesses
Industries connected to government priorities such as green energy, high-tech, advanced manufacturing, and digital innovation offer immense potential. Businesses tapping into social commerce, lower-tier cities, and younger consumers’ evolving interests – including pets and national pride – stand to benefit. Being successful requires adapting to cultural nuances and rapidly shifting consumer preferences, particularly in the case of international brands. At the same time, navigating China’s regulatory environment of stringent data protection laws and sector-specific restrictions remains challenging.
China’s business world faces undoubted challenges in the year ahead, such as the US-China trade war and soft domestic demand, while also benefitting from strong policy support, economic commitment to opening up, and a green transition in full swing. Understanding these trends and aligning strategy accordingly will be vital for businesses and investors doing business in the China market, which remains a global engine of technological progress and economic dynamism.
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