Consumer spending has finally collapsed in China

Spending in China had already dried up to a trickle. Now, it has become a consumer drought. Last month, retail sales fell for the first time since the “zero-Covid” policy days in 2022, sliding to 0.6% after rising to a paltry 0.2% in April.

The official numbers released this week by the National Bureau of Statistics highlighted deep structural flaws. Booming exports fueled by state-funded subsidies are crashing into a domestic slump, illustrating the country’s two-tier economy.

How long Beijing will wait before it finally confronts the aftershocks of the greatest real estate crash in modern history is open to debate. At least US$18 trillion of household wealth was wiped out when the property bubble popped in 2021.

What followed was a spending meltdown, as people felt poorer amid rampant deflation and high unemployment among college-educated graduates. Instead of fixing the problem, President Xi Jinping’s regime tried to export its way out of the crisis.

“The export boom can help to mitigate weak domestic demand in the short term. But given the size of China’s economy, strong export growth will lead to tension with trading partners,” Zhiwei Zhang, of Pinpoint Asset Management, said, as reported by Reuters news agency.

In short, major global economies face an existential crisis.

Danger ahead:

• It already has, as Beijing is on a collision course with Europe. A tsunami of cheap high-tech products is threatening to wreck the European Union’s industrial base.
• At the same time, China faces a rapidly rising debt problem. Last year, it was reported that “hidden debt” risked being as high as $11 trillion.

Delve deeper: “China’s leaders clearly understand that much of the rest of the world is deeply concerned about the influx of Chinese goods hitting their markets,” Andrew Polk, a partner and co-founder of Trivium China, said earlier this year.

Between the lines: “But rather than seeking to assuage those concerns – and avoid future fits of trade tension and retaliation – they seem to be daring other countries to do something about it,” he wrote in the research and consultancy group’s newsletter.

Big picture: In short, major global economies face an existential crisis, sparked by China Shock 2.0. Last week, Beijing reported its “export tsunami” surged more than 19% in May compared to the same period in 2025. The trade surplus topped $105 billion.

China Factor comment: Those numbers are unsustainable. Unless China fixes its problems at home, it will become entangled in trade wars abroad.