China’s economy tells a story of two realities. On the surface, strong export figures and a record trade surplus appear to demonstrate resilience. Yet domestically, warning signs are multiplying, posing fresh challenges for President Xi Jinping as he prepares for critical talks with U.S. President Donald Trump next year.
China’s exports have surged recently, surpassing one trillion dollars in trade surplus, the highest ever. Manufacturing centres continue to ship goods rapidly, helping Beijing keep overall economic growth near official targets. This external strength has boosted China’s image as a global manufacturing giant, even as geopolitical tensions and trade disputes simmer.
However, behind these headline figures, China’s domestic economy is losing momentum. Consumer spending remains weak, with retail sales increasing just over one per cent in November, the slowest growth in nearly two years. Industrial output has declined, investment is slowing, and business confidence remains fragile. Economists warn that these trends point to structural issues that cannot be addressed by exports alone.
Central to the domestic slowdown is China’s ongoing property crisis. Real estate has long been a key part of household wealth, and the ongoing downturn has damaged consumer confidence and reduced spending. Falling home prices, stalled construction projects, and increasing developer debt have heavily impacted economic sentiment.
Even President Xi has publicly criticised what he called reckless investment, signalling official concern over unsustainable growth practices. Beijing has repeatedly promised to shift the economy away from heavy reliance on exports and infrastructure spending towards a model driven by domestic consumption.
Yet, this transition remains slow and fraught with political sensitivity. Large-scale stimulus risks worsening already high debt levels, while implementing deeper structural reforms—such as strengthening social safety nets to encourage spending- remains difficult. The domestic slowdown comes at a delicate time for China’s foreign policy.
As Washington and Beijing approach renewed discussions on trade, tariffs, and technology restrictions, China’s internal economic difficulties may influence its negotiation stance. While Beijing retains significant leverage through global supply chains and access to key resources like rare earth minerals, economic weakness at home constrains policy options.
Analysts note that China’s reliance on exports makes it vulnerable to changes in global demand and potential trade disruptions. With tensions with the United States still unresolved, dependence on external markets to offset weak domestic demand involves increasing risks. For Xi, the challenge is twofold: to restore confidence among consumers and investors at home, and to project strength and stability internationally.
How effectively he manages this balancing act could shape the outcome of talks with Trump, and also influence the future direction of China’s economy.
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