China

Housing and Consumer Confidence

China’s economy might also be more fragile than it appears. Real GDP is growing, but a closer look reveals an ongoing housing crisis that continues to depress consumer confidence.

Assessing the state of the Chinese housing market can be challenging given very different readings from different data providers,² but the latest data suggest that prices for previously occupied homes have declined anywhere from ~20% to ~56% across China’s top six cities (Exhibit 7). Given that the median household in China has about 60% of its assets invested in housing, these declines weigh heavily on the typical consumer’s balance sheet and spending appetite.

Unsurprisingly, consumer confidence remains near record-low levels (Exhibit 8). From early 2025, there were signs of a slight uptrend in confidence, but more recent data have raised questions regarding the sustainability of the improvement.

China’s K-Shaped Economy and the Need for Structural Reforms

China continues to report real GDP of ~5% per annum, as “new economy” sectors such as electric vehicles and energy transition products grow rapidly and gain market share globally. But the quality of China’s economic growth has deteriorated as domestic drivers weaken and the country becomes more dependent on exports.

In recent months, industrial production has grown by 4%–6% year-over-year while retail sales fell year-over-year in May for the first time since the COVID pandemic, as manufacturers produced more goods than domestic consumers could buy. Rather than pursuing the structural reforms needed to strengthen consumption, however, the government appears to be doubling down on central planning and industrial policy—a model built on suppressed domestic wages, elevated savings rates, and export dependence that looks increasingly unsustainable.

In my view, the top priority should be addressing structural inequality. This would mean significantly improving the social safety net for rural workers, who typically earn the lowest wages and receive minimal government benefits in retirement. Approximately 180 million Chinese citizens receive an average benefit of RMB246 per month, which equates to $34 per month.³ By contrast, about 120 million urban retirees receive a much more generous benefit of RMB3,498 ($485) per month, while the roughly 20 million government retirees receive RMB6,243 ($867) per month. While some differentiation in retirement payments is warranted due to the cost of living in cities versus rural areas, this level of rural deprivation is extreme and could easily be alleviated without significant adverse consequences.

Encouragingly, some National People’s Congress members called for higher farmers’ pension payments in the 2026 Two Sessions. If the Chinese government were to enact such reforms, I believe the growth outlook for China would be brighter over a considerably longer time horizon than it is today, as consumer spending would increase while fears of outliving savings would decrease.

China’s Export Engine

In the absence of the historical tailwinds from infrastructure and real estate construction, China’s export engine has become increasingly important to driving growth. In 2025, ~33% of China’s real GDP growth was driven by net exports—the highest level since 1997— and the trade surplus reached $1.18 trillion or ~6% of GDP (Exhibit 9). Despite the US-initiated trade war in 2025, China’s exports rose to a new record of over $370 billion in May 2026, a 19% increase from the comparable periods in 2025. Not all of the increase, however, has been due to market share gains. China has also been a beneficiary of the AI-related capex boom with demand for legacy semiconductors and other technology equipment rising sharply, leading to price increases versus historical price erosion.