Despite a headline‑grabbing 5.2% expansion in the second quarter of 2025, China’s economy is marked by growing fissures that belie its outward strength. Exports continue to surge—buoyed by a temporary truce in the U.S.–China trade war—and factory output remains robust. Yet this export‑heavy model masks a series of structural anomalies: strained local government finances, a faltering property market pockmarked by “ghost cities,” ballooning youth unemployment, and persistent deflationary pressures. Without a decisive pivot toward bolstering domestic demand and shoring up household incomes, these underlying vulnerabilities threaten to curtail growth in the second half of the year.
Petrochemical hubs hum and shipping containers roll through major ports, but liquidity stress is rising. Across key sectors—from electronics to utilities—companies are deferring payments, stretching accounts receivable to record highs and undermining corporate balance sheets. The result is a dual‑speed economy: one in which headline export figures dazzle, even as domestic consumption languishes. With policy still skewed toward industrial production over household welfare, workers bear the brunt through wage cuts, delayed salaries and, in many cases, forced moonlighting to make ends meet.
Overburdened Local Governments and Mounting Debts
Local governments, long reliant on land‑sale revenues and off‑budget financing vehicles, are nearing a fiscal breaking point. Annual audits recently revealed misappropriation of state pension funds and errant borrowing practices, leaving many regions scrambling just to meet payrolls and basic services. According to estimates by several Chinese think‑tanks, the national official deficit ratio is projected to climb to roughly 4% in 2025—up from 3% in 2024—despite Beijing’s pledge of a measured fiscal expansion. Provinces such as Liaoning and Shanxi have tapped emergency bond issuances to cover overdue utility bills, raising concerns about long‑term solvency.
This debt overhang is especially acute in infrastructure projects and utilities, where arrears in the water and gas sectors surged by over 17% year‑on‑year through May. In the southern city of Guilin, a contractor for a government‑led highway project reported waiting more than nine months to receive final payments, forcing it to lay off 20% of its workforce. With off‑budget vehicles no longer able to tap fresh credit, some provinces have resorted to reallocating central transfers—at the expense of social services. Analysts warn that without transparent audits and a shift to sustainable revenue sources—such as improved tax collection and targeted transfers—local governments may find themselves unable to finance essential public works, undermining both social stability and investor confidence.
Demographic Pressures and Labor Market Strains
Beneath the façade of rapid industrial growth lies a labor market under unprecedented strain. Urban youth unemployment remains stubbornly high: in April 2025, the rate for those aged 16–24 hovered at 15.8%, more than triple the overall urban unemployment figure of 5.1%. With some 12.2 million university graduates entering the job market this summer—many equipped only with bachelor’s degrees now considered inadequate—competition for quality positions is fiercer than ever.
Take the case of Li Wei, a fresh economics graduate from Chengdu. After sending out more than 80 resumes over three months, she accepted a data‑entry post at a local startup for half the salary she expected, supplementing her income with two hours of online tutoring each evening. Over in Guangzhou, a furniture‑making workshop delayed wage payments for April and May, blaming slow government contract disbursements; in response, several employees have taken on delivery‑rider gigs during off‑peak hours. Such stories are increasingly common as both public and private employers hoard cash to ride out external uncertainties.
The inflation of educational credentials has prompted many young Chinese to pursue master’s degrees simply to clear the bar for entry‑level jobs. Even then, employers demand multiple internships and certifications, leaving graduates embroiled in a cycle of credential chasing rather than productive employment. The demographic challenge is compounded by lingering effects of zero‑COVID policies—which disrupted schooling and vocational training programs—and by a steadily aging population that weighs on worker‑to‑retiree ratios. In rural counties such as Linquan, where local coffers are thin, teachers report unpaid salaries stretching up to three months, forcing reliance on elder relatives for basic living expenses.
Property Glut and Industrial Deflation
As exports prop up headline GDP, the once‑vibrant property sector has become a source of deep concern. An estimated 65 million homes stand empty nationwide, an eerie testament to overzealous construction and speculative buying that has left entire developments largely vacant. Ghost cities proliferate from the interior Highlands to coastal provinces, where new apartments far outnumber local demand. In response, Beijing has signaled a strategic shift: urban renewal projects will take precedence over new builds, constraining skyscraper‑led expansions and promoting mixed‑use redevelopment of dilapidated urban villages.
For homeowners trapped in unfinished developments, the stress is acute. In Zhengzhou, dozens of families have formed informal associations to lobby developers after payments stalled and building work ground to a halt two years ago. Meanwhile, factory gates are lined with unsold goods as producer prices have fallen for the past two years, with June 2025 marking the deepest deflation in almost 24 months. Reduced industrial profits have translated into cost‑cutting measures—wage freezes, layoffs and recruitment slowdowns—that further depress household incomes.
Attempts to spur consumer credit—such as mandated cuts in lending rates and increased mortgage quotas for first‑time buyers—have met headwinds from rising default rates and squeezed bank margins. Retail sales of consumer goods expanded by just 2.5% year‑on‑year in the first half of 2025, far below the official 8% target, even as household consumption’s share of GDP dipped below 52%. With incomes under pressure and property wealth illiquid, many consumers are deferring purchases of everything from automobiles to electronics.
Amid these anomalies, Beijing faces a pivotal choice: double down on export‑driven expansion or recalibrate toward a more balanced growth paradigm. Economists argue that sustaining long‑term momentum will require redirecting fiscal support to domestic services—healthcare, education, elder care—and fortifying social safety nets to rebuild consumer confidence. Without such measures, the current model risks a deeper slowdown, as external demand ebbs and internal vulnerabilities compound.
The coming months will test China’s economic fortitude not through headline figures, but through its ability to mend the fractures beneath. If policymakers can orchestrate a successful transition toward household‑led growth and transparent fiscal management, the anomalies heating up today may give way to a more robust and inclusive economy tomorrow. Otherwise, the impressive export statistics that populate the quarterly headlines may prove little more than a veneer over growing, systemic risks.
(Source:www.tbsnews.net)
Petrochemical hubs hum and shipping containers roll through major ports, but liquidity stress is rising. Across key sectors—from electronics to utilities—companies are deferring payments, stretching accounts receivable to record highs and undermining corporate balance sheets. The result is a dual‑speed economy: one in which headline export figures dazzle, even as domestic consumption languishes. With policy still skewed toward industrial production over household welfare, workers bear the brunt through wage cuts, delayed salaries and, in many cases, forced moonlighting to make ends meet.
Overburdened Local Governments and Mounting Debts
Local governments, long reliant on land‑sale revenues and off‑budget financing vehicles, are nearing a fiscal breaking point. Annual audits recently revealed misappropriation of state pension funds and errant borrowing practices, leaving many regions scrambling just to meet payrolls and basic services. According to estimates by several Chinese think‑tanks, the national official deficit ratio is projected to climb to roughly 4% in 2025—up from 3% in 2024—despite Beijing’s pledge of a measured fiscal expansion. Provinces such as Liaoning and Shanxi have tapped emergency bond issuances to cover overdue utility bills, raising concerns about long‑term solvency.
This debt overhang is especially acute in infrastructure projects and utilities, where arrears in the water and gas sectors surged by over 17% year‑on‑year through May. In the southern city of Guilin, a contractor for a government‑led highway project reported waiting more than nine months to receive final payments, forcing it to lay off 20% of its workforce. With off‑budget vehicles no longer able to tap fresh credit, some provinces have resorted to reallocating central transfers—at the expense of social services. Analysts warn that without transparent audits and a shift to sustainable revenue sources—such as improved tax collection and targeted transfers—local governments may find themselves unable to finance essential public works, undermining both social stability and investor confidence.
Demographic Pressures and Labor Market Strains
Beneath the façade of rapid industrial growth lies a labor market under unprecedented strain. Urban youth unemployment remains stubbornly high: in April 2025, the rate for those aged 16–24 hovered at 15.8%, more than triple the overall urban unemployment figure of 5.1%. With some 12.2 million university graduates entering the job market this summer—many equipped only with bachelor’s degrees now considered inadequate—competition for quality positions is fiercer than ever.
Take the case of Li Wei, a fresh economics graduate from Chengdu. After sending out more than 80 resumes over three months, she accepted a data‑entry post at a local startup for half the salary she expected, supplementing her income with two hours of online tutoring each evening. Over in Guangzhou, a furniture‑making workshop delayed wage payments for April and May, blaming slow government contract disbursements; in response, several employees have taken on delivery‑rider gigs during off‑peak hours. Such stories are increasingly common as both public and private employers hoard cash to ride out external uncertainties.
The inflation of educational credentials has prompted many young Chinese to pursue master’s degrees simply to clear the bar for entry‑level jobs. Even then, employers demand multiple internships and certifications, leaving graduates embroiled in a cycle of credential chasing rather than productive employment. The demographic challenge is compounded by lingering effects of zero‑COVID policies—which disrupted schooling and vocational training programs—and by a steadily aging population that weighs on worker‑to‑retiree ratios. In rural counties such as Linquan, where local coffers are thin, teachers report unpaid salaries stretching up to three months, forcing reliance on elder relatives for basic living expenses.
Property Glut and Industrial Deflation
As exports prop up headline GDP, the once‑vibrant property sector has become a source of deep concern. An estimated 65 million homes stand empty nationwide, an eerie testament to overzealous construction and speculative buying that has left entire developments largely vacant. Ghost cities proliferate from the interior Highlands to coastal provinces, where new apartments far outnumber local demand. In response, Beijing has signaled a strategic shift: urban renewal projects will take precedence over new builds, constraining skyscraper‑led expansions and promoting mixed‑use redevelopment of dilapidated urban villages.
For homeowners trapped in unfinished developments, the stress is acute. In Zhengzhou, dozens of families have formed informal associations to lobby developers after payments stalled and building work ground to a halt two years ago. Meanwhile, factory gates are lined with unsold goods as producer prices have fallen for the past two years, with June 2025 marking the deepest deflation in almost 24 months. Reduced industrial profits have translated into cost‑cutting measures—wage freezes, layoffs and recruitment slowdowns—that further depress household incomes.
Attempts to spur consumer credit—such as mandated cuts in lending rates and increased mortgage quotas for first‑time buyers—have met headwinds from rising default rates and squeezed bank margins. Retail sales of consumer goods expanded by just 2.5% year‑on‑year in the first half of 2025, far below the official 8% target, even as household consumption’s share of GDP dipped below 52%. With incomes under pressure and property wealth illiquid, many consumers are deferring purchases of everything from automobiles to electronics.
Amid these anomalies, Beijing faces a pivotal choice: double down on export‑driven expansion or recalibrate toward a more balanced growth paradigm. Economists argue that sustaining long‑term momentum will require redirecting fiscal support to domestic services—healthcare, education, elder care—and fortifying social safety nets to rebuild consumer confidence. Without such measures, the current model risks a deeper slowdown, as external demand ebbs and internal vulnerabilities compound.
The coming months will test China’s economic fortitude not through headline figures, but through its ability to mend the fractures beneath. If policymakers can orchestrate a successful transition toward household‑led growth and transparent fiscal management, the anomalies heating up today may give way to a more robust and inclusive economy tomorrow. Otherwise, the impressive export statistics that populate the quarterly headlines may prove little more than a veneer over growing, systemic risks.
(Source:www.tbsnews.net)