CNBC’s The China Connection Newsletter: China’s weak consumer becomes the world’s problem

Hello, this is Evelyn writing from Singapore. Welcome to the latest edition of The China Connection. This is a snapshot of what I’ve seen and heard from local businesses.

In recent years, the slump in consumer spending has underpinned much of the conversation surrounding China. Against the backdrop of sustained export growth, domestic sales challenges have become more serious and globally important. Is there a solution?

Chinese consumers have good reason to be cautious.

For years, their disposable incomes have grown at more than twice the rate of U.S. consumers. Through 2020, people living in Chinese cities can expect their disposable incomes to grow by about 10% or more each year, much faster than the U.S. average of 3%, according to Wind data dating back to 2003.

However, that share has slowed significantly in recent years, reaching 4.3% in 2025, barely exceeding the US rate of 3.8%.

Why did you drop it?

Macquarie’s Larry Hu said in a report on Friday that a major factor was the sharp decline in house prices. Hu said property values ​​have fallen since their peak in 2021 to levels last seen in 2016, wiping out 85% of gains from 2012 to 2021.

This is much steeper than the 47% drop in home prices during the U.S. housing crisis, he said.

“History shows that the outlook for China’s housing market is highly dependent on exports,” Hu said, adding, “China’s housing market will bottom out when policymakers can no longer rely on exports to promote growth.”

And it is here that domestic challenges are attracting global attention.

At the Group of 20 (G20) finance ministers’ meeting in the United States this month, debate is currently heating up over whether China’s exports and economic policies are costing jobs to people in other countries.

The joint statement included a thinly veiled request for China to “remove distortions that constrain domestic consumption.” The Chinese government opposed that clause and three other clauses. It was the only G20 member to voice a dissenting opinion, drawing criticism from US Treasury Secretary Scott Bessent.

China’s imports surged in June at the fastest pace in five years. But that wasn’t enough to meaningfully narrow the trade surplus as global demand for Chinese-made parts used in data centers grows. Exports of air conditioning units to the bloc also increased by more than 40%, hitting a record high due to the European heat wave, state media said.

This has helped China’s exports remain strong despite US and EU tariffs, posting the strongest growth since 2021 in June and beating expectations in July.

Zhong Liang, a former chief researcher at the Bank of China, said China did not intentionally try to increase exports. “I can honestly say that China did not expect this situation at the beginning of this year,” he said in Mandarin, as translated by CNBC.

Zhong noted that the Chinese government has announced several policies to boost domestic demand, but warned that it could take a full five years to see results and the challenge of increasing household incomes could become more difficult.

Due to exchange rate and population differences, the average person in the United States has at least 10 times more money in their pockets than someone in China in absolute terms, Wind data showed.

One relatively new option for Beijing’s state-run economy is to encourage more investment in the domestic stock market, which attracts new tech stocks.

“We hope that the capital market will develop better and bring relatively high investment returns and wealth effects to consumers,” Zhong said.

However, it will take time for retail investors to overcome the negative experiences they have had in the stock market, such as the 2015 crash when the CSI 300 index plummeted more than 40% in one summer.

There are also cultural ideas about saving and spending, in contrast to the United States and many parts of Europe.

According to a People’s Bank of China survey completed in 2025, education consistently ranks first when Chinese consumers actually spend their money.

Healthcare and travel come in second and third place, respectively. So entertainment and shopping get pushed down the list. So it’s not really surprising that retail sales, especially of goods, have been so weak.

But in a world where more than 75% of global trade is in goods, China’s outsized role in making goods rather than buying them is receiving new attention.

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September 8th: Transaction data

September 9: CPI/PPI

September 12-13: BRICS Summit in New Delhi

September 15: Retail sales, industrial production and fixed asset investment data