Chinese consumers pull back again, piling more pressure on Xi's economy

China is sinking deeper into economic trouble as its people pull back hard on spending… again. The country’s ongoing real estate disaster is still dragging everything down, five years after officials claimed they were going to clean up the mess.

The collapse started when Beijing tried to slow down the nation’s reckless property developers, but instead of fixing anything, it triggered a steady housing price drop that hasn’t stopped since August 2021. This past month, the drop in new-home prices got even faster, showing the market still hasn’t hit bottom.

According to Bloomberg, total investment in property for the year has now fallen by the largest amount since the 2020 COVID crash. And in a new low, China Evergrande, once the biggest property company in the country, is being delisted from the stock exchange. That’s the same Evergrande that used to brag about its power in the housing boom. Now it’s just another failed name.

Beijing’s recovery moves stall while consumers tap out

Officials have thrown everything they can at the problem. Local and national authorities have made borrowing easier, slashed interest rates, and even tried pushing a Singapore-style housing model. But none of that has worked.

Prices are still falling. In September, Xi Jinping and the rest of the Politburo said they were going to get the market to “stop declining and stabilize.” That was almost a year ago. The market clearly didn’t listen.

What’s worse is how all of this keeps killing confidence among everyday people. Consumers, still shaken by the 2022 lockdowns, are not spending. All the positive talk from officials hasn’t helped. People don’t believe it anymore.

Even though the economy is supposedly open, nobody’s feeling optimistic. Borrowing has dropped so much that bank loans actually shrank last month, the first time that’s happened in 20 years. People would rather pay off existing debt than take out new loans. That’s how bleak the outlook is.

It gets uglier. Retail sales in July grew just 3.7% from the same time last year, and factory output climbed 5.7%. But on a month-to-month basis, spending dropped for the second month straight. That hasn’t happened since the lockdown days of 2022.

And what little boost there was came from a cash-for-clunkers program, where the government gave money to anyone trading in old household items for new ones. But the money behind that plan is running dry. With no more government incentives, spending is sinking again.

Lending data exposes deeper demand problems

Even in the credit markets, the signs are bad. July showed a small increase in lending compared to June, but that bump came from local governments issuing bonds to deal with their own debt problems. Not because of business activity.

Even worse, economists at JPMorgan (led by Jahangir Aziz and Tingting Ge) say more than half of new loans are going straight toward paying off interest on older loans. That means people and companies are taking loans just to keep up with old ones, not to invest in anything new.

Aziz and Tingting said that if you take out interest payments, real loan growth is only 3.5% compared to the 8% average between 2016 and 2023. “This is ominous for the future of corporates and overall GDP growth,” they wrote. They also warned that it shows just how bad the demand situation in China really is.

Meanwhile, exports managed to surprise everyone in July. Total exports were up 7.2% compared to a year earlier, even though most analysts were predicting a drop. Shipments to the European Union, Southeast Asia, and Australia made up for a fourth straight month of declines in exports to the U.S., where Donald Trump is back in office and tariffs remain in full force.

The bump in trade helped a little, but even that comes with a warning. European leaders have started voicing frustration, and nobody knows how long foreign markets will keep absorbing China’s massive supply.

So, the question is obvious: why hasn’t Beijing thrown more weight behind a proper fix, something big enough to lift housing or actually support people directly?

Then there’s the other problem. China simply doesn’t have the spending power it once did. Deflation is eating into tax revenue, and nominal GDP growth, which matters for things like government income, rose just 3.9% last quarter.

That’s the lowest growth since this kind of tracking started in 1993, not counting the pandemic chaos. Japan, which economists always point to as the cautionary tale for economic stagnation, actually beat China last quarter with 4.2%.

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