By Ephraim Agbo
China, the world’s second-largest economy, is showing fresh signs of fatigue. New figures for July reveal slowing growth across factory output, retail sales, and investment. This weakness stems from a combination of softer domestic demand, a struggling property sector, and the continuing pressure of U.S. tariffs.
Ashley Dudarenok, founder of the China-focused research firm ChoZan, describes this moment as “paradoxical.” On one hand, Beijing is applying economic stimulus; on the other, consumer spending is becoming more cautious and external shocks keep piling up.
The Consumer Puzzle
Retail sales growth fell to 3.7% in July, the weakest since December 2024. Yet the numbers tell a nuanced story: Chinese households aren’t spending less overall — they’re shifting what they buy.
- Daily essentials rose 8.2%
- Entertainment surged 13%
- Jewelry climbed 8%
- Furniture jumped 20%
- Home appliances soared 28%
At the same time, gold demand is booming as households hedge against uncertainty, seeing it as a safe-haven asset. This pattern suggests a price-conscious consumer base that is favoring necessities, comfort, and long-term security over luxury splurges.
But government stimulus has its limits. Much of the support was front-loaded earlier in 2025, and by July its effects were fading. A crackdown on “excessive price competition” has also complicated things: while it aimed to protect profitability, it reduced activity in sectors such as food, beverage, and parts of manufacturing.
Tariffs and the Factory Floor
Factory production growth dropped to 5.7% in July, the lowest in eight months. The backdrop is America’s tariff pressure, with a 90-day suspension set to expire on November 10. U.S. importers are rushing to stockpile goods, particularly holiday items, pushing some factories into double shifts.
Still, Chinese manufacturers aren’t standing still. Many are pivoting toward Southeast Asia, Mexico, Colombia, Saudi Arabia, and Central Asia to diversify markets and reduce reliance on the U.S. The adjustments reflect resilience: “They’re not just sitting idly by,” says Dudarenok. “They’ve put plans B, C, and D in place. They know tough years lie ahead, but they’re willing to endure and adapt.”
Winners and Losers
Not all sectors share the same fate. Maurits Berenberg, CEO of Maxmore Technology Group in Guangdong, says his company has actually ramped up production:
“Our main market was Europe, but U.S. demand has increased. In our niche — electric motors for robotics and drones — demand is huge. Overproduction is a problem in some sectors, but not ours. Rare earths remain essential, and China dominates that supply.”
This optimism is more common among high-tech manufacturers, especially those linked to robotics, drones, and advanced processes dependent on rare earths. By contrast, producers of low-value consumer goods are less confident, facing competition from Vietnam, Malaysia, and other rising manufacturing hubs.
The Macro Picture: Deflation and Demographics
Beyond trade, China is also grappling with deflationary pressure. Falling prices point to weaker domestic demand, and the central bank is under pressure to cut interest rates further.
Randeep Somel, fund manager at M&G Investments, notes deeper structural challenges:
- China’s once-booming population growth has stalled, undermining long-term consumer demand.
- Fixed asset investment and private investment are both slowing.
- The property sector — long the backbone of China’s growth — is deteriorating.
“Growth at 5% may sound strong in Europe,” Somel says, “but for China, it’s weak. Add U.S. tariffs on top, and it’s clear why Beijing is scrambling for solutions.”
Markets reflect this sentiment: the Chinese stock market is up only 7% this year, one of the weakest performances globally.
A Balancing Act Ahead
China’s current slowdown is neither a collapse nor a surge. It’s a moment of transition. Consumer demand is shifting rather than shrinking; manufacturers are diversifying; and policymakers are weighing how much stimulus they can afford.
The paradox is clear: in some industries, demand is booming, while in others, cracks are widening. China remains both the factory of the world and a testing ground for economic resilience in a new era of uncertainty.
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