China’s factory output growth slowed to a 15-month low, while retail sales posted their worst performance since the country abruptly ended its draconian “zero-COVID” curbs, highlighting the urgent need for new growth drivers heading into 2026.
With Beijing’s consumer trade-in subsidies fading, a drawn-out property crisis weighing on household spending and industrial investment risking further deflation, officials have leaned on exports to support growth.
That strategy now looks increasingly unsustainable as trading partners around the world bristle at China’s $1tr trade surplus and look to erect import barriers.
Industrial output rose 4.8 per cent year-on-year, National Bureau of Statistics (NBS) data showed on Monday, the weakest pace since August 2024, slowing from 4.9 per cent in October. It missed a 5.0 per cent increase forecast in a Reuters poll.
Retail sales, a gauge of consumption, grew 1.3 per cent, their weakest pace since December 2022, when the world’s second-largest economy ended pandemic restrictions, well below 2.9 per cent in October and forecasts for a 2.8 per cent gain.
“Strong exports limited the need to turbocharge domestic demand this year, and the trade-in subsidies have started to run out,” said Xu Tianchen, senior economist at the Economist Intelligence Unit.
“I think policymakers have turned their attention to 2026, since the around 5 per cent growth target seems within reach for this year, so there’s little additional motivation for further stimulus.”
The weak data weighed on Chinese stocks, which were also hit by fresh real estate worries as property developer China Vanke scrambled to avoid debt default.
Beijing struggling for fresh ideas
Economists say the economy has passed the point at which further stimulus would provide an effective fix.
The International Monetary Fund last week urged Beijing to speed up structural reform and take action over the property sector, with some 70 per cent of Chinese household wealth tied up in real estate.
Fixing the property pains within the next three years will cost the equivalent of 5 per cent of GDP, the IMF estimates.
More needs to be done to boost household consumer confidence, Fu Linghui, a spokesperson for China’s customs administration, told a news conference after the data release.
China’s new home prices fell further in November.
Fu added that an annual 2.6 per cent decline in fixed asset investment in January-November had largely been driven by a 15.9 per cent drop in property investment over the same period. Developers are struggling to convince investors there are buyers for their apartments, which remain unsold even at discounted prices.
Vanke, one of China’s largest real estate developers, plans to convene a second bondholder meeting this week as it battles to avert default, after investors rejected a plan by the state-backed lender to push back repayment by a year.
The property sector once made up a quarter of China’s gross domestic product.
In a sign of further strain, annual car sales slumped 8.5 per cent, the steepest decline in 10 months, dimming hopes of a year-end rebound in an industry that typically sees strong sales in the final two months of a year.
“The economy slowed across the board in November, and weak retail sales were particularly noteworthy,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management. “The recent contraction in investment and the continued decline in the property market have been transmitted to consumer confidence.”
Even the Singles’ Day shopping festival – which stretched to five weeks this year – failed to excite consumers.
Growing trade headwinds
Government advisers and analysts say China is likely to pursue its current annual growth target of around 5 per cent next year, as it seeks to kick-start a new five-year plan on a strong footing.
But that could prove challenging, with both the World Bank and the IMF offering more conservative outlooks for China’s growth trajectory.
At a key economic meeting last week outlining next year’s policy agenda, Chinese leaders promised to maintain a “proactive” fiscal policy to spur consumption and investment, while acknowledging a “prominent” contradiction between strong domestic supply and weak demand.
Yet the dual focus on consumption and investment cements concerns that Beijing is not yet ready to ditch a production-driven economic model in favour of one that leans more on household spending.
World leaders look to be lining up to put the brakes on China’s exports.
French President Emmanuel Macron threatened Beijing with tariffs during his visit to China and called on the country to correct “unsustainable” global trade imbalances.
Mexico last week approved tariff hikes of up to 50 per cent next year on imports from China and several other Asian countries, aiming to bolster local industry.
Chinese producers may struggle to find new domestic buyers if exports dry up.
“November data point to a broad-based weakness in domestic activity, largely due to a pull-back in fiscal spending,” said Zichun Huang, China economist at Capital Economics.
“Policy support should help drive a partial recovery in the coming months, but this probably won’t avert China’s growth from remaining weak across 2026 as a whole.”
