Is China’s economy fully stalling out?
Looking at the most recent monthly economic data for October — released on Friday — one certainly might think so.
The data print was bad, pretty much across the board, with October seeing:
Industrial value-added (IVA) growth of just 4.9% y/y, down from 6.5% the previous month — and private sector IVA growth of just 2.1%
Fixed asset investment (FAI) down a stonking 12.2% y/y, accelerating from September’s 7.1% decline — and marking the fifth consecutive month of shrinking FAI
Growth in retail sales of consumer goods a meager 2.9% y/y — the fifth consecutive month of slowing growth
Even exports — the primary engine of China’s economic growth throughout 2025 — fell 1.1% y/y in October, compared to 8.3% growth in September.
But despite all the gloom in the headline numbers, if you look under the hood a bit, there are areas of resiliency, especially among consumers — making us downbeat on the economic trajectory over the next six months, but not downright depressed.
Those silver linings include the facts that:
The October deceleration in growth of consumer goods sales was driven by a surprise 6.6% y/y fall in auto sales. Excluding auto sales, retail sales of consumer goods grew 4.0%, the strongest growth rate in three months.
Meanwhile, growth in retail sales of services surged 6.1% y/y last month, the fastest rate of growth we’ve seen all year.
This comes as, year-to-date, households have directed 46.6% of their expenditure toward services — the highest rate on record.
Meanwhile, consumer confidence surveys published in recent weeks by the central bank (PBoC) and stats bureau (NBS) show sentiment improving after years of gloom.
The PBoC income confidence index ticked up in Q3 to its highest score in six quarters.
And the NBS consumer confidence index edged up in September to its highest score in almost 3 years.
This budding confidence boost among households, combined with the accelerating shift toward the purchase of services — as opposed to goods — is an underappreciated aspect of the China consumption story.
It suggests that households — and household spending — may be fundamentally more resilient than conventional wisdom suggests.
I touched on all this — along with a deep dive into China’s plan for its export sector in the years ahead — on this week’s Trivium China podcast, with my colleague Dinny McMahon.
Make sure and give that a listen.
But perhaps most importantly, when it comes to the immediate health — or sickness — of China’s economy, I tend to focus on policymakers’ reaction function.
If the bottom is falling out of economic growth, policymakers tend to react — and often quite forcefully.
But for now, top leaders appear comfortable with the current state and near-term trajectory of the economy — as evidenced by their utter lack of action.
Even the PBoC has been playing it exceptionally cool recently — putting out anodyne policy statements that suggest monetary officials are very far from even tweaking their policy settings, let alone hitting the panic button.
Of course, it could be true that China’s economic officials are simply making bad decisions — or are receiving bad information about the current state of the economy.
But that seems unlikely, as maintaining a basic rate of economic expansion is thoroughly wired into the policymaking process.
The upshot is that China will remain stuck in a relatively low-growth environment over the next couple of years, at a minimum, but also — the foundations of the economy will be more resilient than most Western economists typically project.
Meanwhile, top officials will stay intently focused on transitioning the economy to a fundamentally new growth model — one that places innovation and industrial upgrading ahead of top-line macro growth rates.
Andrew Polk, Co-founder, Trivium China
What you missed
Econ and finance
More details emerged from Xi Jinping’s recent trip to Guangdong throughout the week — confirming that tech development now trumps economic growth.
After being briefed on Guangdong’s modest 4.1% economic growth rate this year, the big man told local officials: “Guangdong’s economy remains the largest in the country. With such a big base, even this growth rate represents a substantial increase.”
No prizes for guessing what tops Xi’s list of “new challenges” for the province, as he stated: “In the process of accelerating indigenous innovation, you must also support the adoption and application of domestically developed products and foster a favorable environment for innovation.”
Tech
On November 7, the State Council released new guidelines calling on state agencies, local governments, and state-owned enterprises to increase opportunities for researchers and small private firms to launch experimental applications for new technologies.
The guidelines called to lower policy and institutional barriers that prevent private companies from accessing the licenses, approvals, capital, and data they need to innovate.
Li Chunlin, deputy head of the macro planning agency (NDRC), said: “We don’t lack new technologies or products. What we lack is a stage provided by governments and leading enterprises [on which the uses for those technologies can be explored].”
On Wednesday, the Financial Times reported that the European Commission is pushing to impose customs charges on low-value packages from Chinese e-commerce platforms two years earlier than planned.
The new EUR 2 per-package fees —which would impact platforms like Shein, Temu, and AliExpress — were slated to begin in mid-2028, but the commission wants to move them forward to early 2026.
Chinese sellers accounted for 80% of the 4.6 billion small parcels bought by EU consumers last year. Local retailers across EU markets have complained loudly that the flood of ultra-cheap imports is distorting competition and undercutting the domestic industry.
Business environment
Companies operating in China will soon be legally required to monitor their greenhouse gas (GHG) emissions.
Starting on January 1: “Enterprises and public institutions shall conduct self-monitoring of pollutant and greenhouse gas emissions from their production and business activities.”
As far as we can tell, this marks the first time that corporate-level GHG monitoring has been made a legal requirement in China, placing carbon reporting on par with other pollutant monitoring.
Foreign affairs
On November 7, Japanese Prime Minister Sanae Takaichi told Japan’s parliament that any attack on Taiwan could constitute “a situation threatening Japan’s survival.”
That phrase is more than just rhetorical bluster: It’s a legal standard that, if met, could authorize Japan to mobilize its security forces.
Takaichi’s comments prompted Chinese Consul-General in Osaka Xue Jian to post on X that “the dirty neck that sticks itself in must be cut off.” Japan’s chief cabinet secretary called the post “extremely inappropriate,” and it was subsequently deleted.
Beijing wants the UK to stop faffing about — that was the message that top diplomat Wang Yi conveyed to British Foreign Secretary Yvette Cooper in a phone call on November 6.
Hopes of a Sino-British reset have diminished this year amid a series of spats, including over delays to China’s proposed new embassy in London, an alleged spying scandal, and the UK’s “prejudicial” trade deal with the U.S.
Wang told Cooper that Westminster needed to make up its mind, saying “Sino-British relations must advance or regress.” Per China’s readout of the meeting, Wang and Cooper “agreed to meet each other halfway and resolve their respective legitimate concerns on an equal footing.”
U.S.–China
According to a report from the Wall Street Journal published on Monday, China is hard at work hammering out the specifics of adjustments to its rare earths export control regime.
Per the WSJ, China is mulling a “validated end-user” (VEU) system, which: “If strictly implemented…could make importing certain Chinese materials more difficult for automotive and aerospace companies that have both civilian and defense clients.”
The WSJ’s sources said that the VEU system was only under consideration and Beijing might still opt for a different approach.
As always, it was a busy week in China.
Thank goodness Trivium China is here to make sure you don’t miss any of the developments that matter.