Rumors: Crisis Everywhere, China's Economic Problems More Complex Than Low Growth Rate

China's second-quarter economic growth rate dropped to 4.3%, surprising the market as it fell below both the official annual target range of 4.5–5% and the first-quarter figure of 5%. While growth figures attract attention, the real crisis lies in structural imbalances that continue to worsen. The most evident imbalance is the increasing dependence on foreign trade, particularly exports. In the first half of the year, China's goods trade surged 16.9% year-on-year, with exports up 13.4% and imports up 22.1%. Last year, China recorded a $1.2 trillion trade surplus, and officials proudly claimed that Chinese exports have diversified into new markets, offsetting declines in U.S. demand due to trade tensions.

However, domestic consumption—the larger and more critical component of GDP—remains weak. The total retail sales of consumer goods, a key indicator of private consumption, grew only 1.3% year-on-year. Including services, overall consumption rose just 2.7%. This sluggish domestic demand is a serious concern.

International economic think tanks consistently highlight China's 'imbalance' as a global issue. With a GDP nearing $20 trillion, the world's second-largest economy cannot sustain long-term growth driven primarily by exports, as other nations cannot absorb such massive export volumes—this is the so-called 'China Shock 2.0'. China's complete manufacturing supply chain enables it to export competitively across industries, from high-tech and capital-intensive sectors like petrochemicals and steel to labor-intensive goods. This has triggered backlash: the EU has imposed tariffs on Chinese overcapacity, and even developing countries like Mexico have raised tariffs, fearing damage to local industries.

This creates a dangerous cycle: as China relies more on exports, trade retaliation intensifies. Moreover, export composition is also imbalanced. High-tech products dominate: semiconductor exports soared 96.1% to $177.2 billion, surpassing cars and smartphones as China's top export. Green energy products also surged—electric vehicles up 68.7%, lithium batteries up 37.6%, and wind turbines up 35.6%.

Positively, this shows China moving up the global value chain. Officially, the National Bureau of Statistics stated, 'Overall, the national economy operated within a reasonable range in the first half, with new quality productivity growing and high-quality development advancing.' But negatively, it reflects over-concentration in specific sectors.

Short-term challenges include managing rising global protectionism—especially from the EU and U.S.—and boosting domestic consumption while addressing the property market downturn. The IMF has long urged China to shift from export-led to consumption-driven growth. In advanced economies, consumption accounts for 70–80% of GDP; even India's is around 60%. China's private consumption, at only 40%, is alarmingly low.

This diagnosis is accurate and widely acknowledged, including by Beijing. The 'dual circulation' strategy, launched in 2020, aims to prioritize domestic demand. Yet after six years, tangible results are minimal. Fiscal stimulus may offer temporary relief, but lasting change requires structural reforms to boost household income and consumer confidence—without this, China's fundamental economic challenges remain unresolved.