【Epoch Times July 11, 2025】China’s three-year epidemic containment measures have dealt a severe blow to the economy. While the world hoped that lifting lockdowns would lead to retaliatory consumer spending across various industries, the streets remain deserted, and consumer demand is weak. Nomura Securities of Japan recently warned that China will face a severe situation of “cliff-like decline in multiple demand sectors” in the latter half of this year.
Nomura Securities’ Chief China Economist, Lu Ting, and his team released a report on Wednesday, July 9th, stating:
“This decline is not a short-term cyclical fluctuation but a systemic weakness caused by structural adjustments and policy uncertainties.”
The report mentions several factors contributing to this “cliff-like decline in multiple demands.”
With the imposition of tariffs by Europe and the US on Chinese exports and the advancement of “de-Chinafication” in supply chains, China’s export industry is facing unprecedented pressure.
The report highlights the diminishing effect of previous “front-loading” of exports. The rapid growth in the first quarter was mainly due to the pre-trade war “front-loading” effect, which is not sustainable and will gradually decline.
According to data from the General Administration of Customs of China, exports to the US in the second quarter of 2025 decreased by 9.6% year-on-year, with electronic, clothing, and machinery products showing the most significant declines.
Furthermore, tariff pressures persist. Nomura’s team emphasizes that even though the US has slightly eased tariffs on China (such as falling from peak levels), the overall level remains close to 15%, with some product tariffs staying at 42%, putting continued pressure on exports.
Reuters analysis suggests that the US intensifying tariffs on electric vehicles, lithium batteries, and solar energy equipment is severely affecting China’s new energy industry, weakening orders and capacity utilization rates at factories in coastal regions.
The owner of an automobile parts factory in Shanghai’s Pudong district admitted to Caixin, “Sixty percent of our orders come from North America, but now customers are shifting to Vietnam and Mexico, so we can only cut jobs and limit production.”
The real estate industry in China continues to struggle. According to data from the National Bureau of Statistics, from January to May, total real estate development investment in China declined by 10.7% year-on-year, with residential investment decreasing by 10.0%. Construction area for real estate developers saw a 9.2% drop year-on-year, while new housing construction area decreased by 22.8%, and completed housing area fell by 17.3%.
Lu Ting had previously pointed out in a public report that the downturn in the real estate industry leads to a decrease in demand in the upstream and downstream industrial chains, dragging down the overall economy.
The report mentions that despite multiple rounds of fiscal and monetary support from the central government, high local government debt, especially through accumulating “hidden debts” via local financing platforms (LGFVs), has squeezed the funding space for new local infrastructure projects.
“Many extraordinary infrastructure projects will have difficulty starting on a large scale without support from central fiscal policies and credit policies,” the report stated.
According to data from Bloomberg, local government special bond issuances fell by 18% year-on-year in the first half of 2025, indicating weak fiscal stimulus.
In November 2024, Beijing launched a 60 trillion yuan local debt swap plan to replace hidden debts, clarifying that hidden debts amount to over 14.3 trillion yuan, weakening local governments’ ability to fund direct infrastructure expenditure.
Experts point out that the previous model of driving GDP growth through projects such as high-speed railways, bridges, and urban development is no longer sustainable. Associate Professor Li Chang’an from Tsinghua University’s School of Economics and Management said, “The marginal benefits of infrastructure on the economy are diminishing, and new growth engines have not yet emerged.”
In early 2025, the Chinese Communist Party issued an internal disciplinary document strictly prohibiting officials from hosting extravagant banquets and drinking activities, affecting the high-end liquor, catering, and exhibition industries. According to the China Alcoholic Drinks Association, sales of premium liquor dropped by 17% year-on-year in the second quarter of 2025, and reservations at upscale restaurants decreased.
A Chinese netizen, Yang Danxu, shared a post online titled “The Dilemma of Gatherings,” recounting how a friend working overseas recently returned to visit their hometown and wanted to arrange a meal with old classmates. However, as soon as the idea was brought up, a classmate who works in the system cautiously advised against dining out due to strict inspections on extravagant eating and drinking.
Last week, the closure of Guangzhou’s high-end dining brand Taoranxuan was suddenly announced, reflecting that “luxury consumption is no longer suitable for current trends.” The mainland Chinese food and beverage market is in a downturn, with many mid- to high-end eateries resorting to outdoor stalls to survive.
Starting in April this year, Hangzhou’s Xiaoshan Baosheng Hotel set up outdoor stalls. Mr. Pan, the hotel manager, explained, “Operating outdoor stalls is a way out for the hotel industry in the current challenging climate. It gives the staff something to do and brings in additional revenue.”
Despite the Chinese government’s short-term stimulus policies like the “old for new” program, overall domestic demand remains sluggish. Nomura’s analysis report points out that the decline in consumption is not due to short-term sentiment but rather a result of “structural weakness.”
China rolled out various subsidies for household appliances and cars as part of the “old for new” program earlier this year.
Nomura’s analysis as reported on Yahoo Finance (Taiwan) on June 24 stated, “It’s challenging to sustain consumption solely through one-off subsidies,” particularly noting that the net driving force from the “old for new” policy will decrease from 0.9 percentage points in the first half of the year to just 0.4 percentage points.
Nomura explicitly warned that the decline in consumption is not a “short-term sentiment” but a structural issue.
Chief economist of Northeast Securities, Fu Peng, stated at the Phoenix Bay Area Economic Forum in 2024 that consumption is a matter of preference closely related to an individual’s risk tolerance, income level, savings, and outlook for the future. When people have sufficient wealth, they naturally choose to consume without the need for external stimuli.
However, in recent years, with the loss of property value among many middle-class households and some families facing negative net worth, consumer willingness has directly declined.
The Nomura report cited calculations showing a decrease of approximately 73 basis points in the average lending rate for existing housing loans in 2023. Currently, the average lending rate for existing housing loans is around 4.5%, while new loan rates generally range from 3.4% to 3.5%, resulting in a spread of 90 to 130 basis points. This indicates that most families still carry high-rate loans, exerting long-term pressure on disposable income despite recent prepayments, making the interest burden a significant weight.
According to a report by Minsheng Observation Network, a significant incident occurred on July 3, 2024— a high-ranking executive from the Shanghai branch of China International Capital Corporation (CICC) tragically committed suicide by jumping off a building due to a pay cut and overwhelming mortgage pressures from the company. At just 30 years old and with an annual salary of nearly a million, she appeared to belong to the high-income group but couldn’t withstand the burden of mortgage payments and reduced income, leading to the tragedy. Similar cases are not uncommon in mainland China.
As reported by China Business News, many middle-class families spend over 45% of their monthly income on mortgage payments, coupled with pressures like tutoring fees for children and housing in sought-after school districts, considerably reducing disposable income.
“Who dares to consume? It’s essentially about just ‘surviving,’ not ‘living,'” expressed an IT engineer from Beijing.
The Nomura report also pointed out that China has as many as 171 million rural elderly citizens, receiving an average monthly pension of only 223 yuan, significantly lower than urban retirees’ levels. Due to the lack of security, people tend to save more and spend less, making it challenging to establish long-term stable consumption dynamics, with essential expenses like education and healthcare adding pressure to low to middle-income families.
Additionally, the report mentioned that initiatives to reduce excess capacity and supply-side reforms are also having short-term negative impacts. Economic pressures have influenced the marriage and dating views of younger people.
Li Kanchai posted on Tencent Net, stating that young people seem to have collectively hit the pause button on marriage, with some even joking, “Remaining unmarried and childless is the final stubbornness of this generation.”
A 28-year-old programmer named Xiaolin calculated that in Shenzhen, a down payment for essential housing alone requires at least 1.5 million yuan, home country customs demand a dowry of 188,000 yuan, and when factoring in wedding costs and banquets, getting married is simply unaffordable without around 2 million yuan.
Furthermore, according to the “China Cost of Childbearing Report 2024 Edition,” raising a child until university graduation costs an average of 680,000 yuan, equivalent to 15 years of income for an average family. Such dilemmas are prevalent in China.
National Bureau of Statistics data shows that in the first quarter of 2025, the number of registered marriages nationwide stood at only 1.81 million pairs, a drastic drop of 159,000 pairs year-on-year, marking the lowest record since 1979. Conversely, divorce registrations rose to 630,000 pairs, an increase of 57,000 pairs from the same period last year. The “settling down” consumption industries like weddings, home appliances, furniture, and travel continue to stagnate. According to the South China Morning Post, wedding planning companies generally report that “the entire industry is shrinking, some cities’ wedding companies have a closure rate exceeding 40%.”
Nikkei Asian Review also points out, “The real risk to China’s economy lies in the loss of confidence among the younger generation, reluctance of the middle class to invest, and the government constrained by high debt and inefficient investments.”