No Easy Fixes for China's Two-Track Economy

While exports remain a bright spot, weakness across property and domestic demand underscores Beijing's challenges in sustaining its economic expansion.

- Tan Dawn Wei

A week ago, it looked like China was in a good place. Its July exports had surprisingly surged 7.2 per cent at the fastest pace in months, defying predictions that US President Donald Trump's trade war would sap the country's export engine and wreak havoc on its economic trajectory.

The outbound shipments exceeded the 5.4 per cent to 5.8 per cent growth rate estimated by economists, and added more optimism to the robust performance of the first half of 2025, when exports grew 5.9 per cent.

Its gross domestic product (GDP) also grew at a healthy 5.3 per cent during the first six months, surpassing the "around" 5 per cent target set for the year.

But then came sobering statistics on Aug 15 which showed that industrial output, consumer spending, business investment, and employment all came in weaker than expected, as the Chinese economy appeared to lose momentum.

Industrial output rose 5.7 per cent in July, the slowest since November 2024 and paling against June's growth rate of 6.8 per cent.

Retail sales grew 3.7 per cent, the weakest pace in 2025 and down from 4.8 per cent in June. Economists had expected an expansion of 4.6 per cent.

A spokesman for the National Bureau of Statistics, when releasing the latest data, had partially blamed extreme weather for the mediocre economic performance. Some factories had to suspend production after being hit by heatwaves and floods.

But even after taking into account such seasonal factors, and more breathing room with another extension of the US-China trade truce, it looks as if the Chinese economy is losing steam. And domestic problems are mostly to blame.