China’s industrial production saw a slight acceleration in November, while retail sales growth fell short of expectations. This mixed performance underscores the need for Beijing to implement more consumer-focused stimulus measures as the country faces potential headwinds from escalating U.S. trade tensions under a new presidential administration.
The latest economic data highlights the challenges facing China’s leadership in achieving a sustainable economic recovery as the country approaches 2025. The potential for worsening trade relations with the United States, China’s largest export market, coupled with persistent weakness in domestic consumption, paints a complex picture for the world’s second-largest economy. Incoming U.S. President Donald Trump’s proposed tariffs on Chinese goods could exceed 60%, potentially forcing Beijing to accelerate its long-standing plans to shift from an investment and export-driven growth model to one fueled by consumer spending.
According to data released by the National Bureau of Statistics (NBS), industrial output in November expanded by 5.4% year-on-year, slightly exceeding the 5.3% growth recorded in October and surpassing analysts’ forecasts of a 5.3% increase. This suggests a modest improvement in the manufacturing sector.
However, retail sales, a key indicator of consumer spending, experienced their slowest growth in three months, rising by only 3.0% in November compared to a 4.8% increase in October. This figure significantly missed market expectations of a 4.6% expansion, raising concerns about the health of the consumer sector.
Independent economist Dan Wang points out that despite persistent weakness in consumer spending, China’s economic policies have consistently favored manufacturers. This approach could exacerbate existing overcapacity issues and encourage Chinese companies to seek out international markets.
Fixed-asset investment, another crucial driver of economic growth, also showed signs of slowing down. Growth in fixed-asset investment for the January-November period was 3.3%, slightly below the expected 3.4% and down from 3.4% in the January-October period.
Some analysts suggest that the disappointing retail sales figures might be partly attributed to the timing of the “Double 11” shopping festival, which shifted some sales forward into October. Adjusting for this effect, the average growth for October and November might be closer to 3.9%, still indicating a reliance on government subsidies to bolster consumer spending.
China’s policymakers have acknowledged the economic challenges and have begun outlining their plans for 2025. These plans include increasing the budget deficit, issuing more debt, and prioritizing measures to boost consumption. The People’s Bank of China has indicated its willingness to further reduce banks’ reserve requirement ratios, although previous easing measures have had limited impact on borrowing.
A major obstacle to stimulating consumer confidence remains the ongoing property crisis, which has tied up a significant portion of household savings in real estate. While there has been a slight improvement in new home prices, with the rate of decline slowing in November, it’s premature to declare a recovery in the property market.
Stabilizing the property sector, which once accounted for 25% of China’s economy, is crucial for Beijing to achieve its growth target of around 5% for the next year. However, the potential impact of new U.S. tariffs could significantly hinder growth prospects.
Recent forecasts suggest China’s GDP growth will be around 4.2% to 4.5% in 2025, with the potential for U.S. tariffs to reduce growth by up to one percentage point.
The Central Economic Work Conference (CEWC) recently reaffirmed the government’s commitment to boosting consumption and implementing supportive fiscal and monetary policies. However, the effectiveness of these stimulus measures in achieving a sustained economic recovery remains uncertain, particularly given the potential for trade disruptions under the new U.S. administration. The coming months will be critical in determining the trajectory of China’s economy and the success of its policy responses to both domestic and international challenges.
