China’s economy remains trapped in the doldrums
The Chinese leadership has gone to great lengths to project an image of strength and confidence—just witness this month’s gathering of China’s friends at the military parade marking the end of World War II. Chinese President Xi Jinping will likely try to maintain that image when he speaks with US President Donald Trump in a phone call scheduled for the end of this week.
But the economic reality is very different than the face China presents to the world, and the latest statistics describe a country mired in a slowdown. The numbers show that efforts to juice the economy late last year have failed to stimulate sustained recovery.
Consumption growth as measured by retail sales fell last month to the slowest pace this year, up only 3.4 percent from August 2024, and compared with a 6.8 percent increase in June of this year. This is despite efforts the government has made to boost consumer spending, including by providing subsidies for trade-in purchases of cars and appliances. As funding to the provinces for the subsidies has been exhausted, retail sales have lost momentum.
Factory and mining output also decelerated last month, posting the smallest gain since August 2024. Fixed-asset investment in the first eight months of the year dropped steeply to a gain of less than 1 percent. Some of the slowdown in production and investment may reflect Beijing’s efforts to strong-arm companies into reducing the price cuts and overproduction that are exacerbating the economy’s problems. Either way, Chinese demand is nowhere near enough in the best of times to meet the country’s high levels of factory production, and these goods are being exported.
There is no escaping the fact that China is struggling to address structural weaknesses that defy simple solutions. For example, in the real estate market, the decline of new home sales and prices for new and preexisting homes accelerated in August. With the real estate sector trapped in a four-year crisis of oversupply and developer bankruptcies, local governments facing a mountain of debt, and consumers tightening their belts as unemployment rises, the government’s reliance on industrial investment amid the downturn is coming home to roost. Beyond oversupply and price cutting, trade tensions with Washington, which have seen China’s exports to the United States fall at double-digit rates for the past five months, exacerbate the problems underlined by the most recent economic indicators.
While China claims “strong resilience” as growth supposedly hits this year’s target of about five percent, the headline numbers—whether accurate or not—don’t capture the state of the economy. Youth unemployment is high and job opportunities are disappearing, with over 80 million people trapped in the gig economy. Many Chinese are losing hope of a better life, especially for their children. The latest economic indicators will inevitably produce another round of speculation about new stimulus measures. But Beijing’s recipe of small interest rate cuts, targeted consumer subsidies, and regulatory changes to boost housing haven’t addressed the underlying problems so far. For the moment, its immediate spending priority appears to be to devote billions of dollars to reducing local government debts. In the meantime, when Xi gets on the phone with Trump, he no doubt will continue to claim that everything is hunky dory.
Jeremy Mark is a nonresident senior fellow with the Atlantic Council’s GeoEconomics Center. He previously worked for the International Monetary Fund and the Asian Wall Street Journal.
At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.
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