The Year of the Wood Snake, which started on 29 January, could be a difficult year for China, with potential trade disruptions likely to hurt an economy highly reliant on export-led manufacturing.

The 2025 Chinese Lunar New Year marks the start of the Year of the Wood Snake, a time of transformation, wisdom, and personal growth. According to Chinese astrology, the Wood Snake will bring new opportunities for growth and change, something China will certainly need, given the high prevailing uncertainty.

In 2024, China’s official GDP growth was 5.0% (vs 5.2% in 2023), matching the number targeted by the Chinese government despite major imbalances. Domestic demand remained weak (retail sales rose 3.5% y-o-y vs 7.2% in 2023), the property market remained low, and the economy close to deflation. The driver has been the export-led manufacturing sector, with exports rising by 5.9% y-o-y (while imports only increased by 1.0%) in 2024, translating into a record-high trade surplus of US$992Bn.

The year has started slowly. China’s January manufacturing PMI dropped to 49.1 vs 50.1 in December, while the non-manufacturing PMI also declined to 50.2 vs 52.2. Although this can be explained partly by the Lunar New Year holiday season, it also indicates persistently weak Chinese demand. Potential US tariffs remain the primary risk for an economy highly reliant on exports. The 10% import tariffs, which should apply to Chinese exports from the first week of February, are below what President Trump initially mentioned and can probably be absorbed by Chinese suppliers and through a weaker Yuan, but this also highlights future potential trade war risks. Such a scenario, which has the potential to have a global impact and would not only be limited to China-US trade, would negatively affect the Chinese economy as it would depress global demand.

Over the past two years, the Chinese government’s stimulus measures have been focused on monetary policy through lower interest rates. Those measures have been relatively ineffective in stimulating domestic consumption as any additional cash availability was put into precautionary savings. As stated previously by Project Blue, China would need a significant fiscal stimulus programme accompanied by structural social reforms, such as pension and social security nets, to boost confidence and domestic demand durably. The Chinese government’s strategy includes placing emphasis on high-tech and AI to raise the economy to a more value-added level, something which could also be used for military and other strategic purposes.

At this stage, it is unclear whether this long-term strategy will be successful. Regardless, 2025 will be marked by a high level of uncertainty, and the risks for the Chinese economy are on the downside. Even in wood, a snake can bite.