Shoppers' strike: Chinese scare the world with unwillingness to spend money
The Chinese economy is in a rather difficult position. Industrial production is still growing steadily, but this cannot be said about investments. The most worrying is the dynamics of retail sales, which have slowed to a minimum since the pandemic. All this suggests that the imbalances in the country's economy are getting worse, while domestic demand remains weak. This is exacerbating tensions with trading partners who are facing rising exports, as well as raising questions about the prospects of exporters to China, of which Russia is one of the most important. Details can be found in the Izvestia article.
Retail has sagged
According to Chinese statistics, retail sales in November increased by only 1.3% compared to last year, the lowest figures in history, with the exception of covid. Investments in fixed assets also disappointed and decreased by 2.6% in 11 months, which means an almost guaranteed rate of the first annual decline since 1998. Industrial production also fell short of forecasts, but still grew by 4.8% compared to last year, indicating that the export boom is supporting the manufacturing sector of the economy.
In general, the country's GDP is expected to grow by an indicator close to the target (5%) by the end of the year. Why are the published figures alarming? Low growth in consumer incomes makes the economy vulnerable to external risks. This year, it has relied on external demand to boost growth, despite the tariff war announced by the Donald Trump administration. There is a significant possibility that the export growth trend may reverse in 2026, as further increased pressure on Chinese goods on foreign markets has already led to the introduction of protectionist measures, which are likely to increase over time.
China understands the problem: President Xi Jinping has spoken about his willingness to put up with slower growth in some industries and, moreover, recently stated that China must prevent "inefficient" investments. Nevertheless, he urges officials to pay close attention to the decline in capital expenditures. Emphasizing the focus on the difficulties of the domestic economy, the CPC plans to publish a collection of Xi Jinping's statements over the past decade about the expansion of domestic demand.
To be fair, the slowdown in consumption growth in November was partly caused by adverse statistical effects. For example, at the end of 2024, China launched a program of government subsidies for the purchase of consumer goods by households, thereby creating a high base for comparison. In addition, Bachelor's Day sales started earlier this year, prompting shoppers to reschedule some of their purchases for October. The effect of trade-in subsidies has weakened, as a result of which sales of household appliances fell by 19% compared to last year — the worst indicator since the beginning of 2020. Car sales fell by 8%, the biggest drop since May 2022.
"Change consumer behavior"
But even adjusted for all this, the news is quite unpleasant. Are they a sign of a long-term weakening of the Chinese economy, or are they temporary problems? According to Olga Ponomareva, an expert at the Economic Policy Foundation, stimulating demand is one of the key tasks of the Chinese leadership for the next year.
— It requires a set of measures focused on the formation of long-term positive trends. Some are already being implemented: reforming the pension system, stimulating the birth rate, and developing the healthcare system. However, Chinese citizens need to fully experience the lasting effects of these measures in order to correct patterns of consumer behavior, which takes time," Ponomareva said.
She added that recent amendments to the price law, which, in particular, prohibit manufacturers from setting prices below costs, i.e. dumping, should contribute to the additional strengthening of the market and a reversal of deflationary trends. Effective implementation of the requirements of the law can limit price competition and the corresponding pressure on price increases.
Igor Danilenkov, Director of Investments and Head of the Asset Trust Management Department at Renaissance Capital, in turn, notes that the slowdown in the Chinese economy is linked to the inability to further maintain growth rates through investments in fixed assets.
— It has been going on for many years, reducing the growth potential of the PRC economy. An attempt to export even more goods is met with resistance from trading partners in the form of new tariffs, and the transition to a model of domestic consumption growth is extremely painful. This process will continue further," the expert concluded.
As Olga Belenkaya, head of the Macroeconomic Analysis Department at Finam, noted, the gap between a high (more than 40%) share of investment in GDP and a relatively low (about 40%, compared with the global average of about 60% of GDP) share of domestic private consumption remains a characteristic feature of the Chinese economy.
According to her, the Chinese authorities will continue to develop programs to support consumption, as well as income growth. Thus, the communique of the October 4th plenum of the CPC Central Committee, which developed the country's new 5-year plan, states the need to "step up consumption in every possible way." At the end of November, the Chinese Ministry of Industry and Information Technology and five other departments published an Action Plan to promote consumption in order to strengthen the link between supply and demand of consumer goods. The same topic was discussed at the CPC Central Economic Working Conference (CEWC), which usually sets targets for economic growth, budget deficits, debt issuance, and other parameters for the coming year.
At the same time, Belenkaya believes that major shifts in stimulating consumption are possible by increasing people's well-being and confidence in the future.
— This can be achieved, among other things, through a significant increase in social guarantees, especially for the rural population. It seems that quick results are unlikely to be achieved," the analyst believes.
Risks for Russia
For Russia, all of the above is becoming more relevant as China takes on an increasingly important role as our country's main trading partner. The trade turnover between the two countries consistently exceeds $240 billion, more than twice the figures of 5-7 years ago. Accordingly, although China's slowdown may affect the rest of the world (still the second largest economy on the planet), Russia is among the most interested parties in Chinese stability and growth.
— In general, there are risks for Russian exports, especially considering that 70% of them are represented by energy resources. The structural restructuring of Chinese industry and the gradual elimination of excess capacity in energy-intensive sectors (metallurgy, mechanical engineering) may reduce the demand for energy resources. On the other hand, lower oil prices may slow down the pace of transition to a low—carbon economy in China, which is positive for Russian suppliers, Olga Ponomareva believes.
According to her, innovations in limiting aggressive price competition in the Chinese market can reduce pressure on suppliers from other countries, and generally promote healthier competitive conditions with a greater focus on product quality and other characteristics.
Igor Danilenko, in turn, noted that Russian exports will be more influenced by the development of electric vehicles in China, rather than the general situation in the Chinese economy.
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