A Slowdown in China’s Economic Dynamics Could Cost the World New Trade Wars

April data from China’s National Bureau of Statistics came in worse than even cautious analysts had expected. Industrial production rose by only 4.1% year-on-year, down from 5.7% in March – the weakest result since July 2023. Retail sales nearly stalled: plus 0.2% after 1.7% the previous month. Domestic car sales plummeted by 21.6% – marking the seventh consecutive month of decline. Capital investment fell by 1.6%.

The PRC’s ’s slump can be attributed to three structural factors that have been brewing for some time.

The first – energy. The conflict over Iran blocked the Strait of Hormuz and disrupted oil supply logistics. Chinese oil refineries, primarily state-owned ones, were forced to cut back on processing volumes. For an economy that depends almost entirely on imported oil, this is a direct blow to industrial production.

The second – real estate. The sector is dragging down all domestic demand. Developers are deep in debt, housing prices are falling, construction is shrinking. The banking sector is on edge. Local budgets, which for decades relied on land sales, are now patching up holes. Real estate had long been the engine of China’s growth – now it is the brake.

The third – consumers who are reluctant to spend. Chinese households are increasing their savings and avoiding new loans. The same pattern is evident across the automotive market, the housing sector, and durable goods. Traditional stimulus measures based on lending are ineffective in this situation: people simply aren’t taking out loans.

Beijing is responding differently than the market expected. The new five-year plan, adopted in March, focuses on energy security and technological independence, rather than on large-scale injections into consumption. The government is deliberately avoiding a repeat of the credit-and-construction stimulus model that the country had already experienced and which left behind a mountain of debt.

The price of such restraint is outward trade aggression. While domestic demand is weak and Beijing is in no hurry to stimulate it, the only option left is to offset the decline through exports. Supporting manufacturers, putting pressure on foreign markets, and expanding presence where buyers still exist. That is why the USA and the EU view China’s excess production capacity as a threat to their own industries. New trade conflicts in this scenario are only a matter of time.