How Long Has China’s Economy Been This Weak? | American Enterprise Institute

China surprised everyone Tuesday night by acknowledging GDP growth well below 5 percent. The official rate is 4.3 percent for the second quarter and 4.7 percent for the first half, to just over $10.1 trillion. More interesting than most such announcements, but not especially important. The important question is whether the true situation is somewhat worse than headline growth suggests, or much worse.

Nominal GDP gained 5.3 percent for the first half, indicating a 0.6 percent deflator. This is slower than both the consumer (+1 percent) and producer (+1.5 percent) price indexes, so “real” GDP is likely overstated a bit in that sense. Bank lending rose 5.2 percent, a record low, and slower than nominal GDP for the first time since the 2021 growth bounce. Good for checking debt accumulation, bad for those who’ve been talking up stimulus for years.

Stimulus seemed reasonable because, in both 2024 and 2025, the purely domestic economy may have shrunk outright. That is, the trade surplus for goods and services was larger than the overall increment to GDP, implying the grouped internal components of GDP contracted. Price effects make things a bit more complicated but, in 2025, the simple calculation for domestic contraction was $300 billion. This is probably too large to be saved by different deflators.

The same approach—comparing the GDP increment to the trade surplus—can’t be precise just yet because June services trade volumes haven’t been published. Extrapolating from results for January through May shows the domestic economy returning to expansion, but a very small expansion of less than $30 billion in absolute size over the six-month period. This is certainly better than last year, and yet so small as to barely register.

That’s not the bad news. There has been more fuss about China taking consumption seriously as an economic engine. Spoiler: it still doesn’t. Much new government rhetoric about supporting consumption turns out to be about forming large retail groups, which, of course, embodies the same view that firms should lead the economy and households will follow.

One of the consumption goals implies annual growth of 3.7 percent for retail sales of goods to 2030. This would have been anemic in 2019, now it requires notable acceleration—retail sales of goods expanded 1.2 percent in the first half of the year. Behind that is a 4.2 percent inflation-adjusted gain in disposable household income. The latter says consumption can expand, but how much? Disposable household income is on course for a paltry $6750 this year.

That’s also not the bad news. The reason even the tiny $30 billion rise in internal components of GDP might be exaggerated is fixed investment. The National Bureau of Statistics (NBS) announced a 5.7 percent drop in fixed investment, ugly enough as it is. Direct comparison to the same official figure for 2025 shows a 9 percent drop.

This is hardly the first stealth revision. The pace for fixed investment this year points to about a 47 trillion yuan total. In 2018, NBS reported it as more than 64 trillion yuan. The Bureau then began the process of revising fixed investment down while, until recently, still reporting investment and, of course, GDP as growing. How does 17 trillion yuan in lost investment volume not affect GDP? The easy answer is the recent, weak numbers are accurate.

And the issue is how much of 2010s’ fixed investment was fake and the aggregate growth it was said to support was exaggerated. This fits wild debt accumulation starting in 2009 and leaves China’s slow period at closing on 15 years. The less likely call is that growth slowed later and more sharply, with NBS sleight of hand hiding how much the economy deteriorated under Xi Jinping, tied to the property bubble pop that began pre-Covid. Either way, the trajectory is unpleasant.