In November, the momentum of China’s economic growth slowed down across the board, with consumer spending notably weakening, and investments and the real estate sector generally sluggish. Retail sales growth hit its lowest level since the outbreak of the pandemic, exacerbating China’s imbalanced growth model and its trade tensions with other regions worldwide.
The Chinese government has gradually reduced subsidies for the “trade-in old for new” policy, and the prolonged real estate crisis has suppressed household spending, while industrial investment faces further risks of contraction, leading to the continuous deterioration of the Chinese economy.
Furthermore, China’s economy has long relied on exports to sustain growth. However, as trading partners worldwide express dissatisfaction with China’s $1 trillion trade surplus and seek to erect import barriers, this strategy is becoming increasingly difficult to maintain.
According to data released by the National Bureau of Statistics of China on Monday (December 15), industrial output grew by 4.8% year-on-year, the slowest growth rate since August 2024, lower than the 4.9% in October and below Reuters’ forecast of 5.0%.
Retail sales, a measure of consumption, grew by 1.3%, the slowest growth rate since December 2022 (when China lifted pandemic restrictions), significantly lower than the 2.9% in October and the previous forecast of 2.8%. As of November, retail sales growth has slowed for six consecutive months year-on-year, marking the longest period of slowdown since 2020.
The subsidy program for consumer goods launched last year has prematurely exhausted some consumer demand, making it difficult to sustain growth momentum. The waning effect of the “trade-in old for new” subsidies was particularly evident in the expenditure data for November. Sales of household appliances plummeted by 19%, the worst performance since early 2020.
Fixed-asset investment was also disappointing, declining by 2.6% in the first eleven months of this year, a larger decrease than the 1.7% from January to October, expected to mark the first annual decline since data recording began in 1998.
The real estate sector has deteriorated once again, with real estate investment plunging by 15.9% year-on-year from January to November, greater than the 14.7% decrease from January to October; the average housing prices in 70 large and medium-sized cities dropped by 2.8% in November year-on-year, compared to a 2.6% decline in October.
The lackluster data weighed on the Chinese stock market, while state-owned real estate developer Vanke faced debt default, further intensifying concerns about the real estate industry.
Another sign of economic pressure is the 8.5% decline in car sales in November, the largest drop in sales in ten months, shattering hopes for a usual year-end rebound in car sales in the final two months.
“Economic activity slowed across the board in November, with weak retail sales deserving particular attention,” said Zhang Zhiwei, Chief Economist at Pinpoint Asset Management, in an interview with Reuters. “Recent investment contractions and continued declines in the real estate market have transmitted to consumer confidence.”
Even the five-week-long “Double Eleven” shopping festival this year failed to spark consumers’ enthusiasm.
Bloomberg economist Eric Zhu stated, “The data for November shows further domestic demand downturn towards the year-end, with output growth hitting a new low for the year despite a rebound in exports. This widespread deterioration indicates that the economy is currently weaker than in the fourth quarter of 2024 before pro-growth measures were implemented.”
Economists reported to Reuters that China’s economy has moved past the stage where further stimulus measures could effectively address the issues.
The World Bank and the International Monetary Fund (IMF) have offered more conservative forecasts for China’s economic growth prospects. The IMF urged Beijing last week to accelerate structural reforms and take action in the real estate industry as about 70% of Chinese household wealth is linked to real estate.
The IMF estimates that the cost of resolving the real estate crisis in the next three years equates to 5% of China’s GDP.
During a key economic conference last week outlining next year’s policy agenda, Chinese Communist leaders pledged to maintain a “proactive” fiscal policy to boost consumption and investment while acknowledging the “prominent” contradiction between strong domestic supply and weak demand.
Nevertheless, in the next five-year plan, Chinese policymakers still prioritize high-tech industries, advanced manufacturing, and self-sufficient industries as the primary tasks for China’s economy in the remaining ten years.
This dual focus on consumption and investment has heightened concerns that Beijing is not yet prepared to abandon the production-oriented economic model in favor of one relying more on household spending.
Meanwhile, countries worldwide are taking measures to restrict Chinese exports.
French President Macron warned during his visit to China of imposing tariffs on Chinese goods and urged Beijing to correct the “unsustainable” global trade imbalances. Mexico recently approved imposing tariffs of up to 50% on imports from China and several other Asian countries starting next year to boost domestic industries.
While the US-China trade war is currently in a ceasefire, the future remains uncertain.
If exports are hindered, Chinese producers may struggle to find new domestic buyers.