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

By Liu Yuanchun

Data from the first half of the year show that China’s economy performed better than expected, underscoring the country’s formidable resilience. But figures released in June suggest that the economy will face a range of challenges in the second half, including the real estate slump, weakening foreign demand, persistent low prices, and fallout from a government clampdown on toxic competition across a range of industries.

Concern about these challenges has sparked widespread unease over the economic outlook for the rest of the year, with some warning that China could suffer a “cliff-like” collapse in demand. However, these pessimistic outlooks often overlook the nuances of these four areas of concern.

Real estate

Will the sector’s search for a bottom serve as a significant drag on the economy in the second half? Many have fixated on the 20% year-on-year slump in new property starts in the first half to argue that falling home prices, end-user demand, and developer liquidity are turning real estate into a principal factor driving the economy toward a cliff.

While these fears aren’t entirely unfounded, deeper analysis shows these arguments generally overlook the unique attributes of China’s property sector and government policy.

The economic fallout from the sector’s troubles is significantly less than it was from 2022 to 2024. Estimates in a recent report published by Soochow Securities Co. Ltd. showed the real estate sector accounted for about 9.6% of China’s GDP in 2024. That’s down from 14.5% in 2020. So, as long as property indicators don’t get any worse than they were in the first half, the sector will be less of a drag on the economy than last year.

Second, the “gray rhino” risks that some observers have flagged, such as China Vanke Co. Ltd.’s debt woes earlier this year, have not materially deteriorated. Through the combined efforts of investors, developers and local governments, the approach to resolving liquidity crises has shifted from sales to asset disposal. No blow-ups were recorded during the debt repayment surge in June. For example, Vanke has essentially cleared its offshore debts.

The central government remains highly attentive to real estate, consistently stepping up support. The Central Urban Work Conference in July marked a new phase in property policies. Priorities focused on urbanization and urban renewal are expected to help accelerate financing for the sector.

Consequently, concerns about an imminent property collapse are unwarranted. Nevertheless, stabilizing the sector remains a pillar of China’s economy — and effective new policies are still needed.

Exports

Another argument for the coming collapse of demand rests on the notion that the front-loading exports to get ahead of U.S. tariffs will come to an end in the second half, after which exports will plummet. This reasoning makes sense, but two critical questions warrant deeper analysis.

First, how much of the 7.2% year-on-year growth in first-half exports in yuan terms came from front-loading? Different researchers have come up with different answers, with some estimating that the export rush contributed 3 to 10 percentage points to that growth. That suggests a significant potential drag on second-half trade numbers.

In my view, however, the core reasons for China’s export resilience lie in the improvement in China’s export competitiveness and the restructuring of trade across different sectors. Therefore, export front-loading is likely not the decisive factor affecting overall export trends.

More importantly, we need to recognize China’s export potential to the EU, Latin America, the Global South and Southeast Asia. This is particularly true amid the ongoing realignment of the global manufacturing supply chain and profound changes in the global trade landscape in the wake of U.S. tariffs. We believe that there will be a surge in near-term demand for China’s manufactured goods, especially capital goods.

While China’s exports are expected to face a series of setbacks in the second half, forecasts of a cliff-like drop underestimate the resilience of China’s exports and overestimate the effect of the front-loading.

Domestic consumption

Many now worry that China’s stimulus policies will produce diminishing returns, leading to a slowdown in consumption. This reading arguably dwells too much on China’s consumer goods trade-in policies.

In practice, these policies delivered strong results through the first half of 2025. For example, in the first five months, the five major consumer-product trade-in programs generated 1.1 trillion yuan ($153 billion) in sales, adding about 2 percentage points to overall retail sales growth. Concerns have focused on whether, with 162 billion yuan in funding already spent in the first half, the remaining 138 billion yuan will be enough to keep momentum going.

I think the remaining funding will be able to spur another roughly 1.1 trillion yuan in sales as the scope of the program has expanded and as local governments match funding. Overall, the stimulative effect isn’t likely to weaken.

Additionally, the government published a 30-point action plan in March to boost consumption. Just one of those points is the trade-in program. We should pay more attention to the medium- and long-term policies in the plan, such as supporting people’s livelihoods through better social welfare and higher household income.

It’s also worth examining the measures aimed at improving the net worth of households. In September, authorities announced several policies to stabilize the stock and property markets to restore household wealth, which ideally will make them more willing to spend. So far, the stock market efforts have shown promising results. Future financial policies are expected to further stabilize both the equity and housing markets.

With all that in mind, I think concerns about consumption dropping off a cliff are unwarranted. Boosting domestic spending remains a strategic focus, and ongoing policy support is expected to sustain a trend of rising consumption.

Low prices

Lastly, some have raised concerns that persistently low prices will exacerbate the economic slowdown. Current data show that costs have been falling for businesses in China, but so have their profits. The main culprit appears to be the toxic competition that authorities in China call “involution,” suppressing profitability despite advances in technology and industrial upgrading.

Since last year, China has launched efforts on multiple fronts to stop this destructive phenomenon. Industry measures pushing against this practice are progressing and may help ease low-price pressures at the micro level.

However, from a macroeconomic perspective, this issue still requires close attention. In particular, the continued decline in the GDP deflator has emerged as a key challenge for policymakers.

Editor’s note: The GDP deflator measures the overall change in prices of all goods and services in an economy. When its year-on-year growth is negative, it may indicate that prices are falling across the board, signaling deflationary pressure and weak overall demand.

To sum up, the pessimism about China’s economic outlook in the second half tends to overlook these four key issues. They often lack accurate assessments of the impact of downward pressures and fail to evaluate the potential strength of upcoming stimulus policies in a systematic way.

Of course, China will face challenges in stabilizing growth in the second half and must not grow complacent after achieving 5.3% growth in the first half. It is necessary to further implement policies aimed at boosting domestic demand and proactively address these four key areas.

Liu Yuanchun is president of Shanghai University of Finance and Economics.

This analysis has been edited for length and clarity.

Contact translator Qing Na (qingna@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)

caixinglobal.com is the English-language online news portal of Chinese financial and business news media group Caixin. Global Neighbours is authorized to reprint this article.

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