China’s economy continues to suffer. Clearly, Beijing’s past stimulus efforts have failed to elicit the desired response.
As if to confirm that something is wrong in this nation’s economy, European air carriers have decided to cut back on or cancel flights to and from China. Despite the obvious need for Beijing to do more, it looks as though further steps to help the economy will wait until March, when China’s rubber-stamp legislature, the National People’s Congress, meets.
The latest batch of figures on China’s economy, if not exclusively downbeat, hardly offers reason for much enthusiasm. Unemployment has declined since last spring but nonetheless remains stubbornly at 5 percent of the workforce. Industrial profits in November 2024 showed a 7.3 percent decline from year-ago levels—the fourth straight month of declines.
New residential construction in November 2024 was about 23 percent lower than in November 2023. Business investment in equipment and structures showed modest growth. Still, the 3.4 percent expansion from year-ago levels in November 2024 mostly reflects the government’s push to increase capacity in what it considers key industries. Investment spending by private businesses barely moved up at all.
Still, the managers’ index for construction and business activity signaled outright contraction in November 2024, while a similar index for manufacturing indicated hardly any growth and an even weaker picture than in October 2024. Consumer spending, although up by 4.8 percent from year-ago levels, nonetheless disappointed expectations.
China’s exports rose by about 6.7 percent in November 2024 compared with the same month a year ago, which looks good on the surface. Still, the strength likely only reflects attempts by buyers to build inventories before the Trump administration’s tariffs go into effect. Export shipments have already weakened from October 2024.
These data, although still pointing toward real growth, fall far short of Beijing’s 5 percent real growth target for 2024. And 2025 looks still more difficult. Even in the unlikely event that U.S. President Donald Trump restrains his urge to impose new, higher tariffs on Chinese goods, the ongoing inventory buildup to get ahead of the feared tariffs promises a downward adjustment in buying later in the year. The rumors are that Beijing will set a 5 percent real growth target for 2025. It does not look doable, at least not now.
In acknowledgment of this economic ill health, European airlines have begun to cut back on flights to and from China. Scandinavian Airlines made the latest announcement. Management said its early November 2024 flight from Shanghai to Copenhagen was the last until further notice. Other airlines have made similar announcements, including Virgin Atlantic, British Airways, Lufthansa, and LOT Polish Airlines.
With this news, only seven European airlines maintain China–Europe flights, down from twice that number in 2019. Even though China-based airlines have picked up some of the slack on the European runs, the number of such flights has dropped by some 16 percent since 2019.
To be sure, some of the retrenchment has to do with comparative costs. Russia, in response to European sanctions connected to the Ukraine war, now forbids European airlines to use its airspace. Because of this imposed detour, European airlines take 15 hours to make the flight to or from China, up from 11 hours when they could use Russian airspace. Mostly because of the additional fuel consumption, costs to these airlines have risen by 10 percent to 15 percent. Chinese carriers can out-compete the Europeans because they can use Russian airspace and accordingly face no such extra burden.
But while relative expenses can explain some of what is happening, the decline in flights mostly reflects a decline in the demand for seats, from tourists to some extent but mostly by businesspeople. And this stands to reason, since at last measure, trade between Europe and China had dropped by 3.3 percent in just the first three quarters of 2024. Perhaps more than the drop in trade, the waning of European investors’ interest in China has cut back on business travel.
The statistics can document the economy’s current struggles and give only a hint about the future. The decisions by the Europeans on trade, investments, and now travel point to a 2025 that might be even more troubled than 2023 and 2024. If, as rumored, Beijing sets a 5 percent real growth target for this current year, it will need to act quickly.
