5% - China's Key Number

Liam Scotchmer
References listed below.

The key number of today is 5% - China's annual growth target. Whilst China has hit this number, domestic issues and tariffs are making fiscal policies be considered so as to hit the annual 5% growth target. (Sandlund 2025)

But if you looked back a few months ago, (or at my recent post) the headlines were positive- "China's trade is thriving despite America's attacks" said The Economist (2025)… so what happened? Why is consumer spending and factory output growth slowing? (Hawkins 2025) 

The bad: The sectors troubling the Chinese economy, are: (you can glance over this)

-Retail sales (consumption) are down: grew 3.4% YoY last month, compared to July's 3.7% growth ---- -House prices, and property investment are down. 
-Unemployment is weakening - edged up 5.3% last month compared to 5% in June.
-Industrial output growth declined - grew 5.2% last month, compared to Julys 5.7% growth
-Fixed asset investment - YTD grew 0.5% compared to 1.6% from Jan to July
-Producer prices declined 2.9% YoY last month (deflationary territory)

Let's divide these two categories into two, and look at why they are down.

Retail sales growth is slowing from 3.7% in July to 3.4% last month, why?:
China has already had a persistent "slowdown in the property market and weaker household demand" for years - this statistic is unsurprising, but has been worsened by an uncertain job market and property crisis. (Hawkins 2025) Therefore, China has relied heavily on its exports (Sandlund 2025).

But relying a lot on exports is risky, as now that US tariffs have been introduced, and production in "overcapacity" sectors like steel are being limited by Chinese the government, the effects are becoming obvious, as we will see next.

The Industrial sector growth has slowed from 5.7% in July to 5.2% last month, why?: "The full effect of the US tariffs are yet to show up in China's economy" (ABC News 2025), (even despite their pause until November 10). Even so, exports to the US have fallen by 33% YoY. Despite this, overall China exports increased by 4.4% in August! (Hawkins 2025) 

On another note, China is concerned about the production of low value investments, and it's also honing in on the overproduction of steel to balance supply and demand. (Yermolenko 2025) But this winding back of capacity in production has lead to employment growth to slow, demand for labour to weaken, and increasing unemployment.

The good:

With demand from the US decreasing, China has nevertheless have had some success diversifying its export locations, and directing exports to South East Asia, Africa and Latin America. (Hawkins 2025) China has also presented a number of stimulus plans, like subsidised loans and childcare subsidies. (Sandlund 2025) The Chief Economist for Greater China at ING supports this, saying "further stimulus support could be needed to ensure a strong finish to the year." Hawkins 2025. This is on top of the white goods subsidies. But the Chief Economist at AMP believes "they need to do more on that front."But notes, the Chinese authorities are cautious of doing too much and "overheating the economy." (ABC News 2025)

China's reliance on its exports leaves it vulnerable - a steadfast approach to domestic monetary policy is needed if it wants to relieve consumption.