The world’s second-largest economy looks like it’s running at two speeds: An export-focused manufacturing sector that’s feeding global hunger for electronics and semiconductors, and a weaker domestic economy beset by sluggish sales, a property sector bust, and “involution,” China’s term for fierce, margin-suppressing competition.
“There’s remarkable resilience and bright spots in manufacturing and exports, and softness in consumption and fixed asset investment,” said Carol Liao, Greater China chair for Boston Consulting Group. “That’s been the pattern for a while now, since 2025.”
No ‘free handouts’
The pandemic marks a clean before-and-after in Chinese consumer behavior. Before COVID, consumption growth consistently outpaced GDP growth; since the pandemic, the reverse has held true, Liao said.
The most obvious culprit is the property market: falling home values have eroded household net worth for a population that holds the bulk of its wealth in real estate, discouraging spending. “This is about the willingness to spend, not ability,” William Bratton, head of cash equity research, APAC at BNP Paribas wrote in a July 22 note.
