China’s export boom masks consumption slump as retail sales rise just 1%
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China’s economy grew 4.3% in the second quarter, its slowest pace since the pandemic, as a 27% jump in exports failed to lift sluggish consumer spending. Retail sales edged up just 1.0% in June, even as industrial output expanded 5.3%, exposing a widening rift between the export-driven manufacturing sector and domestic demand. The divergence underscores the limits of Beijing’s supply-side policies in reviving household consumption amid a property slump and intense competition.
The Two-Speed Economy
China’s second-quarter GDP growth of 4.3% missed the official target, but beneath the headline figure lies a sharp divergence. Exports surged 27% year-on-year in dollar terms, driven by global demand for electronics and semiconductors, while retail sales inched up just 1.0% in June. Industrial output held at 5.3%, reflecting a robust manufacturing sector that contrasts with a domestic economy weighed down by a property bust and what state media calls 'involution' — cutthroat price competition. Carol Liao of Boston Consulting Group noted the pattern has persisted since 2025, with services consumption outperforming goods.
Property Crisis and Consumer Caution
Falling home values have eroded household net worth for a population with the bulk of its wealth in real estate, discouraging spending. BNP Paribas analyst William Bratton wrote that the issue is 'willingness to spend, not ability.' Chinese authorities remain opposed to direct cash transfers, with President Xi Jinping warning against 'welfarism' and 'feeding lazy people.' Instead, Beijing favors investment in human capital through early-education subsidies, elderly care, and social safety-net spending. A new five-year consumption plan targets 60 trillion yuan in annual retail sales by 2030, requiring a modest 3.7% annual growth rate.
Beijing’s Policy levers
On July 13, China unveiled its first standalone five-year plan for consumption, aiming to 'strengthen consumption’s role in driving economic growth,' according to the State Council. The plan eschews household handouts, instead channeling funds into services and human capital. Liao called it 'small steps in the right direction,' noting that 'policymakers are very good at the supply side, not so good at demand.' Within consumption, cars remain the biggest drag on goods sales, even as services spending runs above headline GDP growth.
What's Next
China’s new five-year consumption plan targets 60 trillion yuan in annual retail sales by 2030, with authorities set to roll out supporting measures in the coming months. However, it remains unclear whether these incremental steps will be enough to reverse entrenched consumer caution without direct fiscal transfers, which Beijing has explicitly ruled out.
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China’s export boom masks consumption slump as retail sales rise just 1%
