Slowing Industrial Output and Weak Retail Sales Highlight the Need for New Growth Engines
China’s factory production growth slowed to its lowest level in 15 months, while retail sales recorded their worst performance since the country abruptly ended its extreme COVID-19 pandemic restrictions, underscoring the urgent need for new growth engines heading into 2026.
Subsidies Waning and Housing Crisis Weighing Down Growth
With consumer subsidies fading, a prolonged housing crisis hampering household spending and industrial investment at risk of exacerbating deflation, authorities have relied on exports to sustain growth.
- China’s trade partners worldwide have grown irritated by China’s $1 trillion trade surplus and are seeking barriers to imports.
- Industrial production increased by 4.8% year-on-year, the slowest since August 2024, down from October’s 4.9% and falling short of Reuters survey expectations for a 5.0% growth.
- Retail sales, an indicator of consumer spending, grew by 1.3%, the weakest since December 2022 when China lifted pandemic restrictions. This is well below October’s 2.9% and below forecasts of a 2.8% increase.
Economist Xu Tianchen from the Economist Intelligence Unit stated, “Strong exports have limited the need to boost domestic demand this year, and trade subsidies are running out.” He added, “I believe economic leaders have focused on 2026 as the 5% growth target seems achievable for this year, so there’s little motivation for further stimulus.”
China Seeks New Ideas Amid Economic Slowdown
Economists assert that China’s economy has surpassed the point where a new stimulus would be an effective solution.
- The International Monetary Fund (IMF) urged Beijing to accelerate structural reform and address housing issues, as around 70% of Chinese household wealth is linked to the real estate sector.
- The IMF estimates that resolving housing issues over the next three years would cost around 5% of China’s GDP.
Fu Linghui, a spokesperson for China’s customs administration, said in a press conference following the data release that more needs to be done to boost consumer confidence.
- New home prices in China continued to fall in November.
- The 2.6% annual decline in fixed asset investment from January to November was largely driven by a 15.9% drop in real estate investment during the same period. Developers struggle to convince investors that there are buyers for their unsold apartments, even at reduced prices.
Vanke, one of China’s largest real estate developers, plans to hold another bondholder meeting this week in its efforts to avoid default after investors rejected a state-backed lender’s plan to delay repayment by one year.
The real estate sector once accounted for a quarter of China’s GDP.
Adding to the tension, annual auto sales fell 8.5%, the sharpest decline in ten months, diminishing hopes for a year-end rebound in a sector that typically sees strong sales in the last two months of the year.
“The economy slowed across the board in November, and the weakness in retail sales was particularly notable,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management. “The recent investment contraction and the ongoing housing market decline have been transmitted to consumer confidence.”
Even Singles’ Day Shopping Festival Failed to Excite Consumers
Not even the extended Singles’ Day shopping festival, which lasted five weeks this year, managed to entice consumers.
