China’s economy faces a growing imbalance between its export sector and domestic consumption, according to recent government data and industry analysis. While exports continue to show strong growth, consumer spending and investment at home remain subdued, deepening concerns about the sustainability of the country’s economic expansion.
In the third quarter of 2024, retail sales in China remained weak, increasing just 1.1 percent year-over-year in September, a slight improvement but still reflecting sluggish demand. This contrasts sharply with industrial production, which surged 5.5 percent over the same period, largely driven by factories ramping up output of goods destined for international markets such as cars, electronics, and components for data centers.
The prolonged slump in the housing market has taken a heavy toll on domestic spending. Existing-home prices have fallen roughly 40 percent since 2021, eroding household wealth and consumer confidence. Sales of durable goods, including automobiles and household appliances, have declined sharply despite a government trade-in subsidy program introduced in mid-2024 designed to encourage replacement purchases. Rising unemployment has further dampened consumer willingness to spend.
Investment has also faltered, notably in real estate construction, which remains a key driver of economic activity and local government revenue through land lease sales. The collapse of several major developers has significantly weakened local finances, undermining spending on infrastructure projects such as roads and railways. This has contributed to a broad slowdown in overall investment growth.
Economic research from ANZ highlights the increasing dependence on exports as a buffer against domestic economic weakness but cautions that exports alone may not fully compensate for the shortfall in internal demand. Logan Wright, a partner at Rhodium Group, noted that maintaining open global markets is critical for China’s current economic model to function.
The sharp divergence between China’s export-driven industrial strength and struggling domestic sectors is visible in urban areas like Nanjing and Guangzhou. In Nanjing, for instance, a bustling high-speed rail station contrasts with several nearly empty shopping malls and retail stores suffering from declining sales, especially those linked to housing and construction materials. Local shop owners cite ongoing economic challenges tied to the stagnant real estate market.
Meanwhile, export-oriented manufacturers continue to benefit from global demand, particularly as the construction of data centers expands internationally. September export figures showed a 36 percent increase from the previous year. The Chinese government has taken steps to support exporters, including maintaining a weak currency to aid competitiveness and continuing sizable tax breaks, particularly for industries vulnerable to tariffs and low domestic demand.
In Guangzhou, small businesses such as a zipper shop owner reported significant sales declines over the past decade, leaving some to consider shifting into different lines of work if conditions do not improve.
Chinese officials acknowledge the complexity and volatility of the international environment and emphasize the need to consolidate the foundation for stable economic growth. However, with domestic demand remaining subdued and investment faltering, the country’s reliance on foreign markets is set to continue into the foreseeable future.