China’s Economic Path Under Pressure: Slowing Retail Sales and Trade Tensions with the US
China’s retail sales growth eased to 3.0% in November, the weakest pace in three months. This was a reversal from the 4.8% increase in October and below the market forecasts of 4.6%. This puts into perspective an enduring weakness in sustaining domestic consumption even as government subsidies made up to 2 percent of the growth.
Economists partly attributed the deceleration to the advanced start of the “Double 11” shopping festival that channeled sales during October. Nonetheless, if consumption is taken across and averaged between October and November, it increases by an average of 3.9%, suggesting that key consumption remains low without policy support. Retail sales are considered a strategic sector in China as the country’s authorities seek to change the economic growth model from an investment-oriented to a consumption-oriented one.
Industrial Output and Fixed Asset Investment Offer Limited Relief
In November, industrial output expanded by 5.4%, barely surpassing the 5.3% increase in October and the Market expectation of 5.3%. This is a slight improvement, and this is due to the strong performance in the manufacturing sector. However, overcapacity issues persist, forcing Chinese players to look beyond the country’s shores due to domestic challenges.
Fixed asset investment increased to 3.3% year-on-year for January-November from 3.4% for January-October fixed asset categories. The increase reflects a slowdown in the ability of infrastructure and property investments to revive economic growth, a key area that was suppressed during the real estate downturn.
Trade Pressures and Policy Measures Shape 2025 Outlook
Through his policies, Donald Trump anticipates imposing tariffs above 60% on Chinese products, indicating the possibility of tension rising in trade relations. Such tariffs could reduce China’s GDP by as much as one percentage point in 2025, which may prompt the country to strengthen its initiative to change the structure of the $19 trillion economy.
In doing so, policymakers have threatened steeper fiscal policy to support growth rates. Measures include increasing the budget deficit, debt, and social security. Measures to control consumption also involve subsidies, wage policies, and pension increases. Bonds worth 150 billion yuan have been issued for projects such as trade for household electrical appliances, with more than one trillion yuan in sales revenues this year.
Property market stability continues to be a key focus in the economic plan, and the latest November data reveals the smallest contraction in house prices in a year and a half. Authorities seek to give councils more freedom to buy more housing stock and introduce policies to restore consumer confidence.
