November economic data was a bit of a letdown, suggesting China’s economy is rapidly losing growth momentum.
Fixed asset investment declined by double digits
Industrial output grew at its slowest rate in 15 months
Retail sales of consumer goods grew at the slowest rate in three years
But things aren’t as bad as they seem.
This week, host Andrew Polk is joined by Trivium’s lead macro-econ analyst Joe Peissel to dig into November’s economic data. The gents cover:
China’s supply-side slowdown, and why it’s partially policy-driven
Why China’s consumption dynamics are more resilient than headline data suggest
The reason Beijing appears willing to tolerate a slight economic correction
Andrew and Joe then round things off by discussing China’s policy and economic outlook going into 2026.
Transcript Follows:
Andrew Polk:
Hi, everybody, and welcome to the latest Trivium China Podcast, a proud member of the Sinica Podcast Network. I’m your host, Trivium Co-Founder Andrew Polk, and I’m joined today by Trivium’s Lead Macroeconomic Analyst, Joe Peissel. Joe, how are you doing, man?
Joe Peissel:
Hey, Andrew. I’m good, man. Very happy to be here.
Andrew:
Great. Yeah, it’s good to have you on. We are going to talk today about the latest monthly macroeconomic data out of China, which was dropped this week. So, we are recording this December 17th and we’re going to release it next week. So, we’re recording a little bit in advance, but we are also recording just after the data has come out. So, the most recent data is for the month of November. We’ll talk through that and discuss what it tells us about the current state of the economy and kind of the outlook into 2026. So, it’s going to be a good discussion. But before we get into all of that, of course, we have to start with the customary vibe check. Joe, how is your vibe today?
Joe:
My vibes are good, Andrew. I’m so excited for Christmas and, you know, having a little bit of time off. Obviously, I love my job, best job ever. But no, my vibes are good, man. Super excited for Christmas and spending time with my family. Yeah.
Andrew:
Good. Same, man. I also love my job, but I’m also excited to have a couple of weeks off and just hang with the fam and relax a bit. So that’s good. So, we’re bringing some good energy into this podcast today. I like it.
Joe:
Yeah, for sure.
Andrew:
Well, now before we get into the meat of the discussion, we have to do the usual housekeeping as well. First, a quick reminder — we’re not just a podcast here. Trivium China is a strategic advisory firm that helps businesses and investors navigate the China policy landscape. That, of course, includes domestic policy around a range of issues, but also includes policy towards China out of Western capitals like D.C., London, Brussels, and others. So, if you need any help on that front, please reach out to us at hq@triviumchina.com. We’d love to have a conversation about how we can support your business or your fund. Otherwise, if you’re interested in receiving more Trivium content, check out our website, triviumchina.com. You’ll find a bunch of different options for subscription research on Chinese policy developments.
There’s items on tech, items on markets, items for sort of the general China watcher. We have free and paid options. So, go check that out. You’ll definitely find the China policy intel option that you need. And finally, as always, please do tell your friends and colleagues about Trivium and about the podcast so we can grow our listenership and our business. And while you’re downloading the podcast, please leave us a rating on your favorite pod platform. That helps with visibility. We really appreciate anyone taking the time to do that. All right, let’s get into it. We are going to go through the macro econ data. I won’t beat around the bush. Joe, why don’t you just start with headline takeaways from the November economic data that you think listeners need to know?
Joe:
Yeah. So, I mean, headline takeaway is that China’s economy is losing momentum, at least by the main indicators released by the Stats Bureau. So, every month, the Stats Bureau simultaneously releases data on China’s industrial value added, which is an imperfect proxy for industrial output, fixed asset investment and retail sales of consumer goods. They’re kind of like the three headline indicators that most people care about. And they all came in pretty subpar, really suggests the economy’s losing momentum. But I mean, if we dig into the data and look at some of the other data points that aren’t necessarily in that headline data release, we actually see, there’s a lot of caveats to that slowdown. It’s not as severe as the headline data suggests. So, the big takeaway, I’d say, is November’s data print was bad, but not that bad.
Andrew:
Yeah, I like that take. And I also liked how you framed it in the note you wrote for clients, which is that the economy is slowing, of course, as we head into 2026, but it’s not sort of into the world, and it’s not really something that policymakers seem to be panicking about. It’s kind of a slowdown that’s sort of within the range of acceptable outcomes for policymakers. Would you say that’s right?
Joe:
Yeah. For sure. Yeah, it’s a slowdown that Beijing’s comfortable with. And it’s partially induced policy as well. Maybe we can talk about that in a minute. But it’s not a sign of an economy in crisis or anything like that.
Andrew:
Well, that’s a good point. And I just wanted you to make that clear because so many people, when they analyze China’s economy, it’s either taking over the world or it’s imploding. And we’re trying to give some sober, straightforward analysis here as we think Chinese policymakers would think about the economy. So, I appreciate you laying out that headline takeaway. Let’s go a level deeper then and dig into some of the data. Start me off with sort of the supply side of China’s economy, what’s happening there and which key indicators do people need to be looking at?
Joe:
Yeah. So, in November, China’s industrial value added. And again, as I say, that’s kind of a rough proxy for industrial output. That grew by 4.8%. That’s the slowest growth rate in over a year. So, there’s slowdown in the growth of factory output or industrial output. And China’s investment, fixed asset investment, it’s economy wide measure for demand that businesses and government and property developers are invest in, that declined by double digits. That’s the second consecutive month of a double-digit decline in fixed asset investment. So again, neither of those indicators are particularly positive. But actually, when we kind of dig into the details, it’s not quite as bad as it seems. So, let’s start with IVA. So, 4.8% growth in IVA, the lowest in 15 months.
But actually, high-tech IVA, so high tech industrial output, the growth is actually accelerated, increased by over 8% in November. That’s up from previous months. So, while overall industrial output growth is slowing, growth in this really important high tech, high value-added segments actually accelerated. And of course, the year-to-date industrial output is up by about 6%. That’s broadly in line with pre-pandemic growth rates. So, again, if we take the November data point in isolation, this 4.8%, slowest in 15 months, it looks pretty negative. But when we think about the nuance behind that or think about the data behind the headline figure, it’s really nothing to panic about from an industrial output perspective. The fixed asset investment is much more concerning.
As I said, double-digit declines. I think it fell by about 12% in November and it fell by about the same, about 12% in October as well. So, huge decrease in fixed asset investment. But the caveat here is that this is partially policy-driven. So actually, Andrew, you and I spoke about this a few weeks ago on the podcast. I mean, it’s multifaceted why fixed asset investment is falling so suddenly and so fast. But two of the reasons are, first, there’s this real, centrally driven push by regulators to reduce involution-style competition and excess capacity in the economy. So, they’re trying to restrict the amount of manufacturing capacity. And second is local governments are using funds initially earmarked for infrastructure investment to actually pay down hidden debt.
So, these are two of the main drivers behind why fixed asset investment is falling. And this is causing short-term pain for the economy, but it’s actually in China’s long term economic interests. It’s actually put the economy onto a more stable footing. So, from a supply side perspective, November print looks bad. Actually, again, it’s not that bad.
Andrew:
Yeah. And on the infrastructure piece, we’ll get into kind of our expectations for going forward. But I mean, the three main pieces of FAI are property. We know that’s in the doldrums big time. Manufacturing investment, which is just more private sector stuff, which is down because it’s reacting largely to the evolutionary pressures, both from, I think, a market standpoint and from a policy standpoint. And then there’s infrastructure. So those first two, no real outlook for increasing growth in the near term. But infrastructure maybe a little bit more optimism, would you say that’s right?
Joe:
Yeah, for sure. So, again, infrastructure itself, also a multifaceted issue, why it’s been falling, one of the main reasons I just discussed is that governments are using infrastructure funds to actually pay down hidden debt. But another reason was there was lots of weather-related interruptions over the summer and Q3. So, there was droughts and then there was really heavy rainfall. And all this sort of stuff delays construction projects from getting off the ground. And of course, more recently, policymakers have released a series of initiatives to try and boost infrastructure spending, one of which is getting the policy banks to invest into infrastructure projects. And there’s been a lot of chatter. We saw this at the Central Economic Work Conference, and we’ve seen this in other areas or arenas as well.
That central policymakers are talking more and more about invest in government funding, but in government funding into welfare-related spending as well as welfare-related infrastructure projects, so building schools, building care homes, kindergartens, all this sort of stuff. So, I think there’s plenty of initiatives in the pipeline, which means infrastructure spending, we expected to pick up again in 2026. We don’t think this is a long-term drag on the economy. It’s more like a short-term cyclical blip for the reasons that we’ve discussed.
Andrew:
Yeah, all great points. And I think Dinny talked a little bit on last week’s pod about the policy bank item you just discussed, which is really a lot of these projects, specifically infrastructure projects, can’t get off the ground if they don’t have the initial equity funding to unlock the project. And so usually local governments would spend that money or put in the initial upfront capital. But they’re super strapped, obviously. Or maybe not obviously, but they’re super strapped on the fiscal side. So, can’t, in many instances, put forth the capital to get projects off the ground. So, in come the policy begs to sort of unlock this or sort of to push through this roadblock for a lot of investment to get going by injecting the initial capital.
There was even an item in the Central Economic Work Conference readout that sort of indicated that more of this is on the table for 2026, saying, we will use policy based financial instruments to help support the economy. So, we expected that to be the case here soon. We’ll be on the lookout for that. That’s all good stuff on the supply side. Now, let’s talk a little bit on the demand side. What are the major data points you’re looking at on that side, and specifically the kind of consumption dynamics that you’re tracking.
Joe:
Yeah. So, one of the biggest data points which everyone looks at is the retail sales of consumer goods. And that’s really fallen off a cliff edge. It grew by 1.3% in November. That’s the slowest growth rate in over three years. It’s really a shocking growth rate. And this is mainly driven by a collapse in the sales in the growth rate, year-on-year growth rate of sales of big-ticket items. So, things like new cars, home appliances, I think, like fridges, and TVs, and ovens and all that stuff. And this is mainly because the sale of these items surged late last year and earlier this year on the back of the consumer goods trading program. So, the central government, mainly central government, but also local government funding was essentially subsidizing the purchase of these big-ticket items.
And the way this stimulates demand, or a big portion of this demand that’s stimulated for these subsidies is by bringing forward future demand. So, consumers who would otherwise plan to purchase one of these big ticket items, say, in 6 or 12 months’ time, say you’re thinking of buying a new car next year, but then the government is now offering these temporary short term consumer subsidies so consumers opt to buy the big ticket item now instead. It’s pulling forward future demand. And at some point, that future demand is just exhausted. And that’s what we’re starting to see. So, the sale of these big-ticket items is starting to decline. And a second reason, also related to the consumer goods trade-in program is that funding is starting to dry up. So, as of late Q3, so really thinking about October onwards or September onwards, funding was just exhausted for the program.
There’s not as much funding to go around and not as many subsidies. So, this really explains the sudden drop in the growth of retail sales of consumer goods. And again, everyone sort of jumped on this as evidence that China’s economy is not doing well. Consumption is in the doldrums, but it’s actually more nuanced than that for a couple of reasons. First, if we look at the sale of consumer goods that are outside the scope of the trade-in program, outside the scope of consumer subsidies, they’re grown okay. So, things like the sale of cosmetics, clothing, there’s a category called Office and Cultural Goods, which covers things like PCs and work desks and things like this. All of these items are growing okay.
It’s nowhere near as bad as the headline 1.3% growth figure suggests. And the second, and arguably more important area of consumption, is the consumption of services. And that is soaring. And that grew by 6.2% in November, which is the fastest growth rate so far this year. It’s worth mentioning, actually, that the Stats Bureau only releases data on retail sales of services the year-to-date growth rate. So, that’s growth from January through to November. But Trivium, we have an in-house model that allows us to estimate the monthly year-on-year growth rates. So, our estimate for November sales of services is 6.2% growth, the highest this year. So, I mean, putting this all together, what we see is, yes, there’s a slowdown in the consumption of consumer durables, but actually A, that’s mainly driven by a drop off in the stimulus of the consumer goods program.
And B, the second point, arguably more important is that consumers are actually spending a lot more money on services. So, it’s not a decline in consumption per se. It’s just a reallocation of how consumers spend their money away from goods and towards services.
Andrew:
Yeah, that services piece, we’ve talked about a few times on the pod, but something that we’re tracking closely and we’ll continue to look at in 2026 because we think it’s an important evolution in kind of how Chinese households are spending their disposable income. And we’ll be interested to see whether or not policymakers sort of support that ongoing shift. Dinny seems to think that there won’t be a ton of support behind it, largely because he doesn’t view the consumer goods trade-in program as an effort to truly boost consumption, but rather as an effort to alleviate some pressure for manufacturers to offload their countries, which I think he’s probably right on that front. But in terms of overall support of households and consumption, policy does seem to be evolving a little bit.
And so, we’ll see whether or not there’s more support from the central government on the services side going forward. But there’s also another important aspect of the demand side of things, which is if you’ve got weak domestic demand, there’s always external demand in the form of exports. So, talk to me about what that looks like.
Joe:
Yeah, same old story. Export’s beating everyone’s expectations. I don’t have the figure to hand, but they grew, I mean, they grew well in November. In October, they unexpectedly declined, but they rebounded in November. There’s strong export growth. And importantly, I guess there’s two important trends here, the first is that exporters continue to diversify away from the U.S. So Chinese exports to the U.S. were down, I think, around 20% or more than 20%. But then exports to pretty much every other region in the world, both developed and developing economies grew. So, exports to the EU are up, to Southeast Asia are up, to Latin America are up to Africa up. So, this diversification of exports reduces China’s reliance on the U.S. That’s the first important trend. And the second is that if we disaggregate China’s exports by category and see what categories are driving this growth, it’s really high value add items.
So, things like EVs, semiconductors, batteries, high tech equipment that is driving China’s export growth. So, that’s good news for Chinese exporters on two fronts. They’re opening up new markets and they’re selling high value add products.
Andrew:
Yeah. And just a little additional data on that front, which we analyzed today and wrote about, is on the electric vehicle front. I mean, the numbers were incredible. In November, overall, monthly auto exports hit 600,000 units. That was up just shy of 6% month on month and 52% year on year. So that is overall both traditional ICE vehicles and NEVs. NEVs drove the growth. Exports of NEVs hit 240,000 units in November alone. That’s up 13% month on month and 255% year on year. That’s partially down to base effects because sales in November 2024 were abnormally low at just 80,000 NEV units. But that’s still absolutely crushing in terms of export performance. And it’s based on increasingly strong offerings by these companies’ sustainable prices and increased brand awareness overseas. So, any thoughts on the Navy piece of it?
I guess part of the reason I bring that up is in the U.S., in D.C., everyone’s looking at the headlines that say China had, what was it? a ¥1.1 trillion balance of payments surplus or trade surplus over the first 11 months of the year, which is the biggest in global history. And everyone’s worried about China’s export machine, but a lot of people are buying really good Chinese-made electric vehicles. And it’s hard to see that trend stopping anytime soon. They’re not buying them in the U.S., but they’re buying them in the global South and parts of Europe. I don’t know, any thoughts on all of that stuff?
Joe:
Yeah, 1 trillion USD trade surplus. Yeah, the largest in world history. Just crazy. I mean, what I find remarkable is, certainly for some export segments, there’s still a huge growth potential, including NEVs. NEVs account for distinctly less than half of China’s auto exports. They still export more internal combustion engine vehicles, which really, I think, just goes to demonstrate how much growth potential there still is for electric vehicles as they open up new markets. And of course, particularly for developed… Well, no, I think both the developed and developing economies, there’s huge advances been made in charging infrastructure. And as charging infrastructure increases, an economy’s capacity to import more NEVs is going to increase. So, just a huge growth potential.
And I think the NEVs in particular, all of these other export segments like solar panels, which are… they’re a good example of Chinese manufacturing upgrading, and this is actually an industry where China is now world leading in quality as well as cost, which is a kind of a reversal of Chinese industry from years before. China has always been very competitive on the pricing fund, but generally lagged behind on quality. And it’s now a world leader in quality for NEVs, for batteries, for solar panels, and for other high-tech emerging industries.
Andrew:
Well, and I was going to say, guess who is helping to find and develop the charging infrastructure built out in many of these countries? China, Chinese firms. So, there are sort of the whole sort of Green Marshall Plan idea where China invests as these economies develop so that they can buy more Chinese goods. Just a couple of quick additional data points that I think speaks to your point about how there is still very much runway here in terms of further growth for Chinese exports on the NEV side. So, Q1 2025, average monthly NEV exports were 133,000 units; Q2, 196,000 units; Q3, 210,000 units. We just hit 284,000 units in November, as I said earlier. So, in principle, there should be a ceiling somewhere on any export growth. But our analysts think that the ceiling is likely in the millions of vehicles monthly. Not in the hundreds of thousands.
So, that tells you there’s still a lot of runway there. All right. Well, let’s kind of step back. I mean, it sounds like despite the gloomy headline numbers, you’re overall pretty bullish on China’s macro-outlook unlike, I think, a lot of analysts. So, talk me through sort of why that is and make the case why people should still be relatively constructed about China growth heading into ‘26.
Joe:
Yeah, I don’t want to appear too bullish. There are clear downside risks, but I think everyone already knows them. And they’re talked about a lot. I think my take is that I think this downside risks are probably slightly overblown. At risk of repeating myself, I just think each of the typical narrative of China would be fixed asset investment is falling, property sector is falling, factory growth has slowed to a 15-month low, and consumption is in the doldrums. And I think there’s kind of a valid counterpoint to each of those. So, fixed asset investment, yes, it’s fallen, but we’ve talked about how this is partially policy-driven. The growth of industrial output is at a 15-month low. But we’ve also talked about, historically, it’s still roughly in line with pre-pandemic growth rates.
And high-tech industrial output is still growing really fast. Consumption is in the doldrums. Well, only the consumption of consumer goods. Consumption of services is soaring. And then in terms of the property sector, which everybody talked about, you mentioned earlier, Andrew, the property sector is still declining. The decline has accelerated. So, this is a clear drag on the economy. I think the project is kind of an unambiguous downside risk. It’s very clear this is a downside risk. But even then, I would say, 4 or 5 years ago, the economy accounted for about a quarter… I’m sorry, the property sector accounted for about a quarter of economic activity. That’s down to about 15% now. So, as the property sector shrinks, the drag on the economy is also going to reduce, and it almost becomes less of a problem as time goes on.
Andrew:
Yeah. So, I was just going to say, it’s sort of the same thing on the property sector, I mean, it is a big downside risk. But actually, like I question if there is that much downside, like the downside is already manifested, like can it implode much further? What I always used to say when China was slowing is the closer you are to the floor, the less it hurts when you fall. So, if a lot of the damage has already been done and this is something that’s policy-driven and as policymakers are trying to shift the economy away from the property market, the opportunity, or whatever you want to call it, for an even greater meltdown sort of diminishes. We’re already there. The pain has manifested. And so, the real question is just how long of a drag, how long it drags on economic growth, I think, and that’s been, I think, much longer than policymakers anticipated.
But it’s a world’s historic adjustment away from property in terms of the overall economic growth model. And I just wanted to say I also like your counterpoints there. I mean, what people tend to do, and it drives me crazy, is they either focus on the negative aspects of Chinese growth or the positive aspects, but if you put them together, you get a more nuanced, balanced picture of what’s going on. And basically, I think if you put it simply, the parts of the economy that Chinese policymakers want to be growing are growing, and quickly, and in many cases accelerating. And the parts of the economy where they want to move away from it, frankly, don’t want to drive a bunch of growth are diminishing. And so that lands you in a place where policymakers are like, “Okay, this isn’t great, but it’s largely kind of what we’re trying to achieve.” Would you agree with that?
Joe:
Yeah, totally. I would totally agree with that. Which goes back to a comment made earlier about the slowdown we’ve seen, starting, I mean, a bit in October’s data, is really prominent in November’s data, it’s a slowdown Beijing was comfortable with. I mean, that’s why I’m not super concerned or super pessimistic about China’s short medium-term outlook. I think that the downside risks are slightly overblown, and I think the upside risks are often ignored in popular discourse about China.
Andrew:
Yeah, well, talk to me a little bit about that outlook. What do you think the path looks like both economically and on the broader policy front for 2026 for China?
Joe:
Okay. So, I think on the policy front, I think the government’s policy response function is actually very telling of economic conditions, and that we haven’t seen sort of an end of year scramble to throw fiscal monetary policy support of the economy like we have seen before. I mean, last year is an example.
Andrew:
Past several years, actually.
Joe:
Yeah. Right.
Andrew:
Great point.
Joe:
That we haven’t seen that, I think, strengthens this idea that actually China’s economy isn’t in a crisis. It’s not facing a prolonged slowdown. It’s in a position where policymakers are content with. So, from a policy front, I think that really signals just broadly, by and large, policy continuity. I’d expect maybe some more extension of piecemeal initiatives to boost consumption. Policymakers have suggested at the Central Economic Work Conference, there’s going to be a slightly more proactive support of fiscal policy, but certainly there’s been no signals that there’s going to be sort of a big bazooka fiscal monetary stimulus. And I think that from an economic outlook, I mean, the economy is definitely going to hit its growth target this year of 5%. There’s only one more month to go, and fundamentals are strong enough to get it over the line.
And again, I think, much like we’re going to see policy continuity, I think we’re going to see a continuity in terms of economic trajectory. I think 2026, we’re going to see similar downside risk. So, the property sector is still going to be a risk. Local governments are going to have to continue tackling levels of hidden debt, which may weigh on infrastructure spending. Consumption of durable goods is probably going to remain muted. But likewise, those upside risks are going to remain. I expect exports are still going to outperform. Retail sales of services are going to continue growing strongly. So, I think the general picture from an economic trajectory and a policy trajectory perspective is continuity, much like we’ve seen over the past few months.
Andrew:
Yeah. And I think one of the big questions really is will the government sort of further this trend, this central government further their trend of taking on more and more fiscal spending responsibility? Like, if local governments can’t spend on infrastructure because they’re strapped, will the central government, will Beijing find other ways to do that, either through special treasury bonds, other direct outlays through the policy banks, which we talked about? So that’ll be important one to watch. And then, I think, you’re right on the continuity piece. We’re already hearing that the growth target is likely, or we understand that it’s going to be set at 5% again, around 5%. So, they’re likely change the overall goal for next year. The big question is how do they get there? What is the makeup of growth look like.
And can they further sort of improve the structure of growth? And can they do anything to sort of close the supply-demand gap that you’ve been writing about and talking about all year? I do think they can probably improve the structure of growth by ongoing sales of high-value-added goods and ongoing innovation, that kind of thing. I’m a little bit more skeptical that they can do much to close the supply-demand gap, which means another year of pretty aggressive exports. Would you agree with that view or how do you view that?
Joe:
Yeah, I think I would, but I would also counter that there seems to be growing momentum towards, and we talked about this briefly earlier, this kind of welfare-oriented government spending or infrastructure spending. These are kind of two separate lanes. Infrastructure. Welfare-oriented infrastructure spending would involve the building of schools and new hospitals. And then more general government spending could be things like expanding free childcare or expanding health care coverage, things like this. And there’s a lot of policy chatter. You know, we track this every day, right? Day in and day out. I think the frequency of policy chatter about these sort of welfare-oriented initiatives is gaining traction. Now, whether that translates into concrete policies and how long that takes is another question.
So, yeah, I broadly agree with your point that that supply demand gap is going to be really hard to close. But I think there is some sort of policy initiative or policy push to do that.
Andrew:
Yeah. Great points, great points. And I’m glad you brought that up. I guess my main point in saying that is even if they do do some level of work to address the mismatch, they’re still going to be relying on exports a lot, and the rest of the world is going to be unhappy about it. So, the trade tensions that we’ve seen in 2025 are set to remain in place.
Joe:
Yes. Yeah, I totally agree.
Andrew:
Awesome. Well, this was really great, really clear. I appreciate you taking me through everything today, Joe.
Joe:
Yeah. Thanks for having me, Andrew. It’s been good fun.
Andrew:
Yeah, of course. And happy new year, happy holidays. Hope you enjoy some time off. Hope all the listeners enjoy a little bit of time off as well. Maybe you’re listening to this podcast over the holidays, we appreciate everybody listening throughout 2025. We’ll be back in your feeds in early 2026. So, I think that’ll do it for today and for the year. So, thanks a bunch, Joe, and thanks, everybody, for listening. We’ll see you in 2026, everybody. Bye.
