【Epoch Times June 23, 2026 News】Chinese Communist Party leader Xi Jinping clearly instructed at the Central Economic Work Conference at the end of last year that the main driving force for China’s economic growth in 2026 would come from domestic demand. However, half a year has passed, and macroeconomic data paints a completely different picture: domestic consumption is experiencing a rare contraction while exports, primarily of high-tech products, are surging against the trend.
As vast national resources continue to be poured into the technology industry and export subsidies, while the people struggle with heavy debts and pessimistic expectations about the future, outsiders not only question: who is China’s economic development truly serving?
The recent data released by the National Bureau of Statistics of the Communist Party of China shows that from January to May of this year, China’s social retail sales of consumer goods increased by only 1.4% year-on-year, with a direct decline of 0.6% in May. Such a bleak situation was only seen when the “dynamic zero-COVID” policy was implemented in 2022.
Consumer data reflects the present moment, while investments, which reflect the future, are also weak. From January to May, China’s investment index fell by 4.1% compared to the same period last year, marking the worst performance since the beginning of the pandemic.
The stagnation in the real estate sector has produced a domino effect, with new commercial housing sales area and sales volume falling by 11% and 14% from January to May, respectively. This downturn has further spread downstream: furniture sales down 3%, building and decoration materials down 8%, and home appliances down 7%.
Additionally, in May, China’s automobile-related goods saw a high drop of 16% year-on-year. Jason, the host of the current affairs commentary channel “Jason’s Perspective,” believes that purchasing automobiles is usually seen as an expectation of future income for families. The drastic drop in car consumption indicates a lack of confidence in the future, leading people to postpone buying: “If I can delay it for a year, I will.”
Even though online retail sales of goods and services grew by 6% year-on-year from January to May, Jason bluntly said that this is not consumption upgrade but rather “defensive consumption.” Consumers are primarily focused on the lowest prices and coupons available online, reflecting the pervasive “lack of security” in Chinese society.
What is even more worrying is a report by Bloomberg citing research institution Gavekal Dragonomics estimating that by the end of 2025, about 10.6% of China’s 1.1 billion adults were overdue on debts, equivalent to about 100 million people facing difficulties repaying mortgages, car loans, or credit loans.
Faced with weak consumption, the Chinese Communist government has successively implemented stimulus policies such as subsidies, trade-in programs, and consumption vouchers. But why are people still reluctant to spend money?
American economist David Huang told the Epoch Times that the main reason the subsidies are ineffective is the collapse of consumer confidence and expectations for the future economy. Moreover, these subsidies and money distribution are small and temporary measures.
He emphasized that the real burden on the Chinese people lies in insufficient social security and high taxes. Families have to bear the burden of education, healthcare, and retirement on their own, along with the stagnation in real estate causing shrinking wealth for middle-class and low-income families, leading people to significantly cut down on future consumption expenditures.
Taiwanese scholar Sun Guoxiang shares the same viewpoint, stating in an interview: “The problem is that Beijing is treating structural confidence and income issues as short-term insufficient consumption.”
Sun Guoxiang believes that against the background of limited wage growth in enterprises, unstable youth employment, and dwindling assets, people tend to save money and pay off debts, with savings serving as a form of self-insurance.
He pointed out that consumption vouchers can only lower the price of one-time purchases but cannot eliminate people’s feelings of insecurity about the future. If income distribution and social safety nets are not improved, it will be challenging to establish a sustainable cycle of domestic demand.
He further analyzed that the so-called “dominated by domestic demand” is fundamentally “government-led,” such as past real estate development and large-scale infrastructure, being the result of government intervention.
He criticized, stating: “Strictly speaking, China has never truly formed an economy dominated by residents’ consumption. The deeper reason lies in China’s economic and political system.”
David Huang bluntly stated that the severe income inequality in China, “with a large amount of wealth concentrated in the monopolistic ruling class and interest groups highly tied to power,” is the first reason. He pointed out that the long-term emphasis by Beijing’s decision-makers on “a strong country and weak people, the state advances while the people retreat,” along with the inertia of supply-side and planned economics thinking, makes it challenging to genuinely allocate limited resources to benefit ordinary families.
The domestic market unable to absorb the vast production capacity forces China’s economy to rely more on exports. According to official statistics, China’s goods exports in May increased by 14%, while the data from The Economist shows a more than 19% annual growth in May exports.
Sun Guoxiang analyzed, saying, “It’s not that Beijing doesn’t understand the importance of domestic demand, but the current development system is still more adept at expanding production and exporting, unwilling to genuinely transfer income and resources to the residential sector.”
China’s financial and local officials’ assessment systems have long favored investment and manufacturing, leading to slogans about emphasizing consumer-led growth while the actual operations return to building factories, expanding production capacity, and subsidizing businesses.
This ultimately forms a tough cycle. David Huang summarized it as a vicious cycle: investing in and subsidizing manufacturing, leading to overcapacity. With overcapacity and insufficient domestic demand, companies have to resort to price wars to export overseas. Consequently, when European and American countries retaliate through anti-subsidy investigations and raising tariffs, corporate profits decline, and residents’ incomes are under pressure.
Sun Guoxiang pointed out that China’s current economic situation can be described as “transitional stagnation.” He mentioned that the old real estate and infrastructure models are approaching their limits, making it difficult to drive growth. However, the new model cannot be established due to inadequate system reforms and income distribution.
If Beijing continues to rely on industrial subsidies and exports without truly benefiting the people, China’s economy may be stuck in a long-term dilemma of low consumption, overcapacity, external friction, and low inflation reinforcing each other.
In official data, the stark contrast to the consumption winter is the strong growth of the high-tech manufacturing industry. In May, the value-added of industries above a designated size increased by 4.5% year-on-year, with high-tech manufacturing soaring by 15%. Industrial robot production surged by 28%, lithium battery production grew by 40%, and 3D printing equipment increased by 54%.
The Chinese government is heavily investing in high technology, with initiatives like the third phase of the Big Chip Fund registering a capital of 344 billion yuan. According to estimates by the Center for Strategic and International Studies (CSIS) in the United States, various support for China’s electric vehicle industry has already exceeded 1.6 trillion yuan by 2023. There are also reports of an investment of around 2 trillion yuan in constructing a national AI data center.
However, the breakthrough in technology has not reached the vast grassroots population. The Economist pointed out that unlike in the past when the export boom absorbed millions of rural workers, China’s leading industries today are no longer labor-intensive.
For the same level of expenditure, electric vehicles create far fewer jobs than traditional automobiles or new residential construction. The percentage of migrant workers employed in the manufacturing industry has decreased from nearly 37% in 2010 to 28% last year, forcing a large number of laborers to transition to gig economy jobs like food delivery riders – “they shuttle on the roadways rather than standing beside production lines.”
Additionally, high-tech industries are highly concentrated in a few cities, leading to inland provinces’ share in China’s industrial sector decreasing from nearly 48% in 2013 to 36% last year, exacerbating regional disparities. Blind subsidies from local governments have also led to resource wastage. The consulting firm AlixPartners estimates that among 129 Chinese electric vehicle brands, only 15 will be financially viable by 2030.
Commentator Jason sharply remarked: “The biggest problem with the CCP’s high-tech development path is not technology but that it has alienated technology from the Chinese people.”
He explained that in a normal economic logic, technological advancement should drive up wages and consumption. Still, the CCP is doing the opposite—lowering residents’ incomes to increase international competitiveness, concentrating resources on exports. Furthermore, these high-tech industries that rely on capital and automation fundamentally cannot create enough job opportunities for Chinese society.
Facing China’s long-standing efforts to suppress domestic demand, expand capacity recklessly, and push pressure onto the global stage, international backlash is well known. The European Union, the United States, as well as India and Southeast Asian countries, are increasingly guarding against China’s export dumping, erecting tariff barriers, and implementing industry protection measures.
The Economist warned that China’s apparent export success and domestic economic weaknesses are forming a vicious cycle: weak domestic consumption leads to price declines and currency devaluation, enhancing export competitiveness. The robust exports allow policymakers to postpone necessary reforms such as increasing social expenditure.
As David Huang put it: “‘Old models’ and ‘transformation’ are not purely technical problems but systemic issues… economic development ultimately has its objective laws and will not change due to the personal will of leaders.”