Weekend Long Read: Why Concerns About a Collapse in China’s Demand Are Overblown

China’s economy outperformed expectations in the first half of the year, reflecting robust resilience despite increasing challenges as the year progresses. Key concerns for the latter half include the enduring real estate slump, declining foreign demand, persistent low prices, and the ongoing consequences of government efforts to curb “toxic competition” in various industries. While these issues have caused apprehension—with some fearing a sharp economic downturn—most pessimistic forecasts fail to recognize the complexity and context of each challenge[para. 1][para. 2].

Real estate, traditionally a major driver of economic growth, has drawn particular concern after a 20% year-on-year slump in new property starts in the first half. While problems such as falling home prices, weakening demand, and developers’ liquidity issues certainly exist, the impact of the real estate sector on GDP has declined significantly—from 14.5% in 2020 to roughly 9.6% in 2024, according to Soochow Securities. Importantly, the risks posed by major developers like China Vanke have stabilized, with notable successes in managing offshore debts and avoiding major defaults during recent repayment peaks. Central government policy remains focused on supporting the property sector, and renewed attention to urbanization and urban renewal is expected to improve financing and stability in the market. Thus, while vigilance remains necessary, fears of a property-driven economic collapse appear exaggerated[para. 3][para. 4][para. 5][para. 6][para. 7][para. 8].

In exports, the prospect that “front-loading” to get ahead of U.S. tariffs would lead to a sudden slump has been raised. While front-loading may have contributed 3–10 percentage points to the 7.2% growth in export value in the first half, the underlying strength of Chinese exports lies in enhanced competitiveness and the evolution of the global supply chain. The ongoing realignment—spurred by shifting trade relationships and supply chain changes—means that while a slowdown is likely, predictions of a nadir are overstated. China’s export potential, particularly to the EU, Latin America, the Global South, and Southeast Asia, is expected to remain strong, especially for capital goods[para. 9][para. 10][para. 11][para. 12].

Domestic consumption has also raised doubts, with concerns that the benefits of stimulus policies may fade. However, in the first five months of the year, major trade-in programs generated 1.1 trillion yuan ($153 billion) in sales—adding about two percentage points to retail sales growth. Even as remaining funding drops to 138 billion yuan, policy expansions and local government matching suggest continued momentum. A broader 30-point action plan to spur consumption includes longer-term policies like social welfare improvements and policies to stabilize household wealth via supportive interventions in stock and property markets, which have already shown encouraging results. Sustained policy support aims to bolster domestic spending in the months ahead[para. 13][para. 14][para. 15][para. 16][para. 17][para. 18].

Persistent low prices, or deflationary pressures, largely stem from “toxic competition” that has suppressed company profits despite technological gains. Government measures to curb this phenomenon have been introduced and are making progress, but macroeconomic concerns persist, notably the continued decline in the GDP deflator, which indicates broad-based falling prices and subdued demand[para. 19][para. 20][para. 21][para. 22].

In conclusion, while challenges affecting real estate, exports, consumption, and prices are real, widespread pessimism about China’s economic outlook tends to ignore the unique characteristics of these issues and the likely effectiveness of targeted policies. With 5.3% GDP growth in the first half, China must remain proactive, further implementing policies to boost demand and stabilize growth for the rest of the year[para. 23][para. 24].