China's leadership has acknowledged the need to prioritize consumption and foster entrepreneurship, but these goals require deeper systemic reforms and a bolder embrace of risk-taking to reignite growth and confidence in the economy.

China’s GDP growth slowed during the first three quarters of 2024, from 5.3% to 4.7% to 4.6%, raising fears that the country would not achieve its annual growth target of around 5%. But the latest data suggest that China’s economy is finally turning the corner.

The business model that underpinned Chinese economic growth for over two decades has collapsed in recent years, especially since the outbreak of the COVID-19 pandemic. Now, the combination of rising uncertainty and falling confidence is casting a dark shadow over the Chinese economy.

The Chinese stock market has rallied recently in anticipation of another round of government stimulus. This is understandable, as the authorities have rolled out multiple monetary and fiscal stimulus packages to stave off deflation and boost GDP growth. But with public debt already well above historical norms, there is limited room for further fiscal intervention without risking a future debt crisis.

With the country at a critical economic crossroads, the Chinese government’s carefully calibrated policy adjustments provide a solid foundation for future growth. The economy is expected to gain strength, as domestic development and global confidence are both addressed through clear-eyed assessments of deep-seated challenges.

China’s engineering prowess has been nothing short of extraordinary. From world-class infrastructure and eco-friendly cities to space systems and high-speed trains, China’s impressive accumulation of state-of-the-art physical capital has played a dominant role in driving its economy. But China’s physical engineering accomplishments on the supply side have not been transferable to social engineering efforts on the demand side, especially in stimulating consumer demand.

In the run-up to the 2018 mid-term elections, then-President of the US Donald J Trump began to ratchet up the intensity of both his rhetoric and policies targeting China – more specifically, the US-China trade relationship. Castigating the trade deficit as one in which China was unfairly taking advantage of China, Trump fired his first shot in July, imposing tariffs on $34 billion worth of Chinese goods.

I saw nothing but denial in my recent post-US-election tour of Asia, with stops in Hong Kong, Shenzhen, Beijing, and Singapore. Taking a cue from surging global equity markets, Asians are making every effort to wish away problems at home and abroad.

The country is capable of mitigating any ill effects should Trump return to the aggressive form of his first term. China may feel some pressure, but it has built a multilayered economic defense involving domestic demand, fiscal policies, high-tech innovation and international cooperation.

China’s recent monetary stimulus measures initially boosted stock markets but quickly fell short of reviving domestic demand and investment. A "whatever it takes" approach with more forceful fiscal stimulus is essential to reset consumer and investor confidence.