Critical cracks are ripping through China’s economy

Critical cracks are appearing in China’s economy. Last week, the National Statistics Bureau reported that GDP growth in the first quarter jumped to 5%, hitting the top end of the government’s target. It accelerated from 4.5% in the final three months of 2025.

But a breakdown of the numbers simply does not add up. Consumer spending barely has a pulse, while private and foreign investment has dried up. Net exports have also taken a hit, despite claims that China’s massive manufacturing machine is driving the economy.

“Growth is driven primarily by government investment, the economic returns from which are often secondary,” China Business Spotlight reported last week, highlighting Beijing’s expanding model based on hidden debt.

“In reality, [the economy] is at best stagnating and, at worst, already shrinking. Using this mechanism, [Beijing] can achieve any desired growth target and thus maintain the illusion that masks real economic decline for the population,” the Substack site said.

Dodgy data:

• Since rapid modernization in the 21st century, the economic figures coming out of China have always been suspect. But now they appear to be rooted in the official narrative.
• Last year, fake jobs became all the rage amid China’s unemployment crisis among the young. Many felt compelled to hide their jobless status from family and friends.

[Xi] has steered the country’s economy straight into the traps he identified.

Yanmei Xie, MERICS think tank in Berlin

Delve deeper: “Not long ago, anyone could comb through a wide range of official data from China. Then it started to disappear,” The Wall Street Journal reported in 2025.

Between the lines: “In all, Chinese officials have stopped publishing hundreds of data points,” the WSJ pointed out, including vital statistics on youth unemployment.

Big picture: Most of the blame lies with President Xi Jinping. “[He] has steered the country’s economy straight into the traps he identified five years ago,” Yanmei Xie, of the MERICS think tank in Berlin, warned in a commentary for The Wire China this month.

Bottom line: Ying Zhang, of the Economist Intelligence Unit, illustrated the challenges ahead. “China’s retail sales momentum is fading. The absence of structural reforms means consumption will remain a weak growth driver,” Zhang said, as reported by CNN last week.

China Factor comment: The property collapse has shattered household wealth, forcing families to cut spending. The job market is also terrifying, while wage growth is in a deep freeze. Upheavals in the tech sector continue unchecked. The cracks are widening.