tl;dr
China's economy slows to 4.7% growth, sparking urgent calls for domestic consumption shift as trade tensions and deflation strain global markets.
**China's Economic Slowdown Sparks Calls for Domestic Consumption Shift Ahead of Key Communist Party Conference**
China’s economy growth slowed to its weakest pace in the third quarter, raising concerns about its trajectory and prompting the Communist Party to prioritize boosting domestic spending at its upcoming key conference. Despite a surge in exports, the slowdown highlights deepening challenges, including escalating U.S.-China trade tensions and structural weaknesses in consumption and investment.
**Slower Growth Amid Trade Tensions**
The National Bureau of Statistics is expected to report a 4.7% year-on-year GDP growth for the third quarter, down from 5.2% in the previous quarter. This decline, attributed to U.S.-China trade disputes, has curbed investment, industrial output, and retail sales, weighing on global economic growth. Analysts warn that the slowdown underscores the need for a strategic shift to stabilize the economy.
**Focus on Domestic Consumption**
Economists are urging policymakers to prioritize domestic consumption as a key driver of growth. With household consumption accounting for just 40% of GDP—below the global average of 56% and far behind wealthier nations’ 60%—experts argue that boosting consumer spending could offset risks from U.S. tariffs and declining returns in traditional industries.
At the upcoming Fourth Plenum, party officials are expected to discuss strategies for 2026–2030, including measures to stimulate consumption. Analysts like Michelle Lam and Wei Yao of Societe Generale SA note that while policymakers recognize the importance of consumption, actions have been cautious. They emphasize the need for concrete targets, such as investments in education and job creation, to address persistent economic vulnerabilities.
**Deflation and Structural Challenges**
Despite overall growth near the government’s 5% target, China faces mounting challenges. Nine consecutive quarters of deflation—a first since the 1970s market reforms—reflect declining prices, eroding corporate profits, and weak consumer demand. The housing market remains stagnant, and investment is plummeting, signaling deeper structural issues.
Morgan Stanley economists, including Robin Xing, highlight that while technological self-sufficiency and innovation will remain central to policy, there may be limited progress on social welfare reforms. The emphasis on national security and innovation contrasts with the need for broader economic stimulus.
**Global Responses to China’s Export Controls**
Internationally, the G7 has voiced concerns over China’s export restrictions on rare earths, which dominate 80–90% of the global supply. European Economic Commissioner Valdis Dombrovskis announced that G7 finance ministers will coordinate a short-term response, while prioritizing supply chain diversification. The move comes as China’s expanded export controls raise fears of geopolitical tensions and economic disruption.
**Looking Ahead**
As China navigates its economic challenges, the Communist Party’s upcoming conference will be critical in shaping policies to balance growth, consumption, and resilience. With global pressures mounting, the path forward will require bold strategies to address deflation, trade tensions, and the need for a more consumer-driven economy. The world will be watching closely as Beijing seeks to redefine its economic priorities in an increasingly uncertain global landscape.