China’s economy suffered a big ‘blow’
China, the world’s second largest economy, currently appears to be standing on the brink of economic crisis. The new figures that have come out for the month of October have worried economic analysts not only of China but of the entire world. The situation is that both the country’s factory output and retail sales have grown at their weakest pace in the last one year. China’s economy, which has been an example of growth and progress for decades, is today facing pressure from all sides. On one hand domestic demand is sluggish, on the other hand investment in the country is continuously falling.
old formula failed
For many decades, there were two very ‘easy’ and effective formulas for China’s growth. First, to export on a large scale across the world on the basis of its huge factories. Second, to lay a network of huge infrastructure projects in the country by withdrawing money from the government treasury. But, now it seems that both these routes are closed for China. By imposing tariffs, US President Donald Trump has given a strong message to China that it can no longer depend only on the world’s largest consumer market i.e. America for its growth. At the same time, it has become difficult to generate growth in the country by building new industrial parks and power substations because China’s total industrial capacity has now reached its limit. This is the reason why the economic figures released every month seem to be worsening instead of improving.
Customer’s ‘trust’ broken in the market
The figures released by the National Bureau of Statistics are clearly disappointing. China’s industrial production grew by only 4.9 percent in October. This is much less than the 6.5 percent growth in September. If we compare, this is the weakest figure recorded after August 2024. At the same time, retail sales also increased by only 2.9 percent. Although this figure is slightly above the estimate of 2.8 percent, such a slow pace clearly cannot hide the weakness of domestic demand.
Understand from an example that even China’s biggest and famous ‘Singles Day’ shopping festival could not give the expected boost to sales this time. Customers got lower prices, but their confidence remained weak. This shows that consumers’ wallets are no longer as strong as before and they are hesitant in making purchases.
Export machinery gave a shock
The biggest cause of concern for China is its export machinery, which is no longer performing as before. China’s exports suddenly collapsed badly in October. The main reason for this is the recession in the American market and the high tariffs imposed there, which have crushed the demand. Producers had increased their stock for months, but now they are finding it difficult to sell this product elsewhere at a profit.
Not only exports, the car market has also been affected by this. China’s auto sales suddenly fell after eight months of growth. This happened when it was expected that people would buy rapidly before the end of the tax break. This decline is even more worrying because the last quarter of the year is usually considered the strongest time for car sales.
On top of all this, the slide in investment and property sectors is further increasing the fear. There was a decline of 1.7 percent in fixed asset investment between January and October, which is much weaker than expected. The condition of the property sector is the worst. The prices of new houses have fallen at the fastest pace in the last one year.
Waiting for big relief package
Amidst all these challenges, the Communist Party of China recently met and decided the economic direction for the next five years. It talks about increasing domestic consumption and strengthening the industrial base. But implementing these reforms is a very difficult and fraught with political risk. Many economists believe that the government may again choose the same old, ‘easy’ path, giving priority to large public sector enterprises and infrastructure projects, while leaving small businesses and households behind. Initial signs are also pointing in the same direction.
At present there is little hope of a big stimulus. China has set its growth target at 5 percent and to achieve this target, only about 4.5 percent growth in the fourth quarter will be enough. Therefore, the government seems to be in no mood to provide any large-scale relief package. However, experts are warning that if this weakness in domestic demand, exports and investment continues, then China will have to announce major economic reforms or relief package before 2026, otherwise the ‘Dragon’ growth engine may cool down forever.