Cracks Emerge in China’s Economy
Key economic indicators highlighted worrying cracks in China’s economy. Exports slumped to a six-month low in August, rising just 4.4% year-on-year after surging 7.2% in July. Weakening external demand could exacerbate margin pressures, hurting the labor market and weighing on domestic demand.
Recent private sector PMI surveys have revealed two critical themes, pressuring Beijing to introduce fresh policy measures to bolster the economy. Private sector firms face intensifying competition amid rising costs. Firms are cutting selling prices, despite rising input costs, squeezing margins. Margin squeezes are forcing companies to cut staff to protect profitability.
Private sector firms cut staffing levels in August, with manufacturers reducing headcount for the fifth consecutive month. Notably, manufacturers reported weaker external demand for the fifth month in a row. Service sector firms also reported margin pressures, leading to job cuts.
Labor Market Concerns Mount
August’s job cuts pushed unemployment higher, weighing on private consumption. Unemployment rose from 5.2% in July to 5.3% in August, while retail sales increased 3.4% year-on-year (March: 6.4%). Crucially, youth unemployment (16-24 year-olds, excluding college students) increased from 17.8% in July to 18.9%, the highest level since December 2023. Unemployment among 25-29 year-olds rose from 6.9% to 7.2%.
Despite the doom and gloom, Goldman Sachs raised its 2025 growth forecast for China from 4.6% to 4.8%, edging closer to the 5% GDP growth target.
Why is Goldman Sachs upbeat about China’s economic outlook?
Analysts at the US banking giant likely expect Beijing to boost the economy with meaningful stimulus measures, targeting the labor and real estate markets. China’s growing presence in the AI space could be another consideration.
US tariffs and levies on transshipments through third countries have not deterred China from testing the Trump administration’s limits.
Beijing Escalates Proxy Trade War
On Wednesday, September 17, Beijing targeted US chip manufacturers, causing a market stir. CN Wire reported:
“China’s internet regulator has ordered the country’s largest tech firms to halt all p