Chinese domestic economy slumps amid trillion-dollar export boom

China is running a striking economic contradiction. Its factories are shipping goods abroad at record levels, delivering a trade surplus that has crossed the trillion-dollar mark. Yet at home, the world’s second-largest economy is losing momentum, with consumers tightening their purse strings, investment faltering and confidence eroding.

Recent official data underline the scale of the slowdown. Retail sales growth in November slipped to 1.3%, the weakest reading since the end of pandemic restrictions. Industrial output growth eased to 4.8%, a 15-month low. Fixed-asset investment contracted by 2.6%, among the worst performances in decades, while property investment plunged close to 16%. Even sectors that usually show resilience, such as automobiles and home appliances, posted steep declines.

China’s statistics authority acknowledged the strain, saying the economy faced multiple challenges, with insufficient domestic demand compounded by external uncertainty.

Exports carry growth, but imbalance deepens

Beijing has leaned heavily on exports to meet its headline growth target of about 5%. For now, that strategy has worked. Overseas demand has propped up output and employment, allowing policymakers to avoid a large-scale domestic stimulus.

The cracks, however, are becoming harder to ignore.

Domestic demand is being squeezed by a prolonged real-estate crisis, fragile household confidence and fading fiscal support. At the same time, China’s vast export surplus is provoking growing resistance abroad. Governments from North America to Europe and Latin America are responding with tariffs and other trade barriers, arguing that Chinese overcapacity is distorting global markets.

Economists warn that relying on foreign consumers to sustain growth is risky. Retail sales have slowed for six consecutive months, the longest such streak since the early pandemic period. Even extended promotional events, including a weeks-long Singles’ Day shopping season, failed to revive spending enthusiasm.

China also stands out among major economies for how low inflation has fallen. Weak hiring, cautious households and a slumping property sector are keeping prices under pressure. The central bank, meanwhile, remains wary that aggressive rate cuts could damage bank profitability, limiting its room for manoeuvre.

Property crisis remains epicentre of weakness

At the heart of China’s consumption problem lies its property market. For decades, housing served as both a growth engine and a store of household wealth. Estimates suggest roughly 70% of household assets are tied to real estate.

That wealth continues to erode. New home prices fell again in November, while property investment dropped nearly 16% over the first eleven months of the year. The malaise is no longer confined to highly leveraged private developers. Even large, state-linked firms once viewed as relatively stable are struggling to reassure investors, with delayed repayments and tense negotiations with bondholders.

Officials concede that discounted homes are still failing to find buyers. International institutions have warned that repairing the sector could cost the equivalent of around 5% of GDP over several years. Beyond the financial cost, the psychological damage is severe. Half-finished projects and unsold apartments have turned housing from a symbol of security into a source of anxiety.

Xi warns against ‘fake growth’ as old model frays

The slowdown has sharpened unease within China’s leadership. At a recent high-level economic meeting, President Xi Jinping issued an unusually blunt warning against inflated local data and reckless investment projects, criticising wasteful industrial zones and debt-fuelled expansion.

“All plans must be based on facts,” Xi said, adding that those who ignored reality would be held strictly accountable.

The message reflects a tension at the core of China’s economic strategy. Xi has repeatedly called for “high-quality, sustainable development”, yet local officials are still assessed largely on growth numbers. At the same time, global demand for Chinese goods is facing mounting political resistance.

Trade headwinds are multiplying. European leaders have warned that China’s export-led model is unsustainable. Mexico has approved steep new tariffs on Chinese imports to shield domestic manufacturers. The United States and its allies continue to press Beijing over industrial overcapacity, particularly in clean energy and electric vehicles.

International financial leaders have cautioned that China is simply too large to rely on exports as its main growth engine.

Outlook clouded despite modest support plans

For now, Beijing appears reluctant to unleash aggressive stimulus. Policymakers are expected to rely on moderate interest-rate cuts and a budget deficit similar to last year’s, coupled with vague pledges of “proactive” fiscal policy.

Financial markets remain uneasy. Long-dated government bond futures have slid, equity indices are under pressure and fears about property developers continue to weigh on sentiment.

China is still likely to meet its growth target this year, and a similar target is widely expected for the year ahead. But confidence in the medium-term outlook is fading. Economists increasingly argue that without a decisive shift towards boosting household income and consumption, growth will remain subdued.

China’s economy is not collapsing. It is stalling in a quieter, more politically uncomfortable way. Factories still hum and ships still leave port. Yet inside the country, households remain cautious, investors hesitant and policymakers caught between an export-heavy past and a more constrained future.