cross-posted from: https://lemmy.sdf.org/post/59493169
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[China’s growth in exports] contrasts sharply with a still struggling domestic economy, where retail sales do not take off. Fixed investment is in a rare decline, and the property crisis is worsening.
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Beyond the gloomy real estate sector, other structural factors, such as high youth unemployment (around 19% in August), rising automation, a moderate social security system and stubbornly low consumer confidence, largely explain the continued domestic economic weakness.
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This domestic weakness is further exacerbated by external headwinds, from the impact of the Middle East conflict, reflected in rising fuel prices – which are contributing to pause the deflationary spiral and have been contained so far by China’s sharp cuts in fuel imports and use of strategic oil reserves – to geopolitical tensions. A protracted Middle East energy shock and China’s increasing fuel imports could put upward pressures on fuel prices in the coming months.
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However, the expanding trade surplus and industrial overcapacity, particularly in sectors such as EVs and renewables, are likely to intensify trade tensions with China’s trade partners – particularly with the EU – which represents a vulnerability. While the US-China bilateral trade relationship is in a fragile but managed mode – threatened by key issues such as AI and Taiwan, but expected to be preserved after the second Trump-Xi summit of 2026 – a trade war with the EU is looking increasingly likely.
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