Recently, China’s economic figures continue to show a gloomy outlook, with GDP growth in the third quarter of this year at 4.8%, failing to maintain the “5%”; and a 1.1% year-on-year decline in exports in October, marking the first negative growth in eight months. With continuing decline in investment and insufficient domestic demand, the export sector, characterized by dumping at low prices, is also losing its luster, indicating that China’s economy is deeply mired in recession, seemingly without the ability to turn the situation around.
In October of this year, China’s exports decreased by 1.1% compared to the same period last year, significantly lower than the market’s previous expectation of a 3.2% increase and marking the first negative growth since March of this year.
Exports play a crucial role in China’s economy, reaching its peak in 2006 at 36% of GDP. During the first trade war between the United States and China after President Trump took office, China’s export-to-GDP ratio dropped to 19% in 2018 and was 18.86% in 2024.
To boost exports, Xi Jinping introduced the concept of “new productive forces” in September 2023. Consequently, industries such as electric vehicles, batteries, and solar panels (photovoltaics) in China rushed forward, promoting them as “new energy” and “low-carbon emission” products to overseas markets at low prices.
Professor Xie Tian from the Darla Moore School of Business at the University of South Carolina stated to Epoch Times that the “new productive forces” is a “daydream” of the Chinese Communist Party (CCP), intended to “boost the economy and stimulate exports,” but when introduced, it “basically failed,” as demonstrated by the poor quality of electric vehicles.
China has seen incidents of domestically manufactured electric cars catching fire, and even tragedies where drivers and passengers were burned alive because they couldn’t open the doors to escape.
Xie Tian mentioned that subsidizing electric vehicle manufacturing by the CCP results in “industrial junk production.” Such electric vehicles are simply not viable for export to developed countries like the United States or Europe due to safety issues and tariff barriers.
Currently, the United States imposes a 100% tariff on Chinese-produced electric cars, a 50% tariff on photovoltaic products, and a 25% tariff on electric vehicle batteries. The European Union has initiated anti-subsidy investigations, indicating that they may also consider imposing tariffs.
American economist David Huang pointed out that the so-called “new productive forces” essentially signify “expansion on the supply side,” resulting in a cycle of high investment, high production capacity, low prices, exports, and dumping when domestic demand cannot be met. He believes this situation will lead to rapid anti-subsidy and anti-dumping retaliation from European and American markets.
In the communique of the Fourth Plenary Session of the 20th Central Committee of the CCP issued on October 23, there were two emphases on the “new productive forces” in the economic planning for the 15th Five-Year Plan.
Taiwanese economist Wu Jialong suggested that China’s economy should focus more on meeting the needs of its own people by allocating production capacity and resources to address domestic requirements such as education, healthcare, housing, social welfare, and vocational training, rather than vigorously producing the so-called “new productive forces” for foreign markets.
Other data indicates that China’s domestic demand and investment continue to decline, leading to economic recession.
In September of this year, the total retail sales of consumer goods grew by 3.0% year-on-year, the slowest increase since December of last year. The Consumer Price Index (CPI) in September decreased by 0.3% year-on-year, while the Producer Price Index (PPI) decreased by 2.3%, marking a continuous decline for 36 months.
In terms of investment, China’s fixed asset investment decreased by 0.5% in the first nine months of this year, with private investment declining by 3.1%. Additionally, real estate development investment in the first nine months decreased by 13.9%, and commercial property sales dropped by 7.9%.
In China’s GDP in 2024, investment contribution accounted for 24.7%, and household consumption contribution stood at 39.9%. These are the three main pillars supporting China’s GDP, commonly referred to as the “three horses carriage.”
Xie Tian pointed out that with all three pillars contracting, it reflects a structural issue in China’s economy. He said, “Over the past 20 years of economic development, China has thrived by taking advantage of the international market and benefiting from the U.S. allowing it to join the World Trade Organization. However, it failed to fulfill its promises and unilaterally took advantage of Europe and America. Now that the U.S. no longer allows this, China finds it hard to continue.”
David Huang believes that the actual support of China’s economy lies solely on exports, while domestic demand and investment serve the purpose of facilitating exports. Therefore, the reduction in exports indicates that “China’s economy will continue to remain sluggish for some time, and the private economy will continue to deteriorate.”
Wu Jialong stressed that private consumption should account for 60% to 70% of GDP, which is a proper balance. China’s domestic demand falling below 40% is inadequate, and this insufficiency stems from “institutional reasons.”
He explained that much of China’s economic income is derived from state-owned enterprises, controlled by the second and third generations of the red elites, leading to a significant portion of this income not being spent domestically. Wu emphasized that the insufficiency in domestic demand is a crucial consequence of this structural disparity and institutional issue.
Due to these institutional and structural disparities, the problem of inadequate domestic demand in China will persist, leading to deflation. Wu highlighted that “many indicators will exhibit deflation,” and issues like unemployment, the real estate crisis, and local fiscal risks will remain unresolved, indicating that future data will be merely inflated.
In August of this year, the urban youth unemployment rate in China, ages 16 to 24, soared to 18.9%, reaching a new high. After the start of the new semester, this number slightly decreased to 17.7% in September.
China’s GDP growth rate in the third quarter of this year was 4.8%, reaching a new low for the year compared to 5.4% in the first quarter and 5.2% in the second quarter. Although China’s GDP growth rate has always been considered inflated, it still poses a challenge for the CCP’s goal of maintaining a 5% GDP for the entire year in 2025.
Xie Tian remarked, “The real problem with China’s economy ultimately lies in a political system. This problem seems to be exacerbating the economic deterioration, and now China seems powerless to turn things around.”