A worker welding metal at a factory in Hangzhou in China’s eastern Zhejiang province.
STR/AFP via Getty Images
As the global economy stumbles into the fourth quarter, China is increasingly feeling the strain of trade tensions and weak demand at home.
This presents Chinese leader Xi Jinping with a Catch-22 few would relish. The easy answer is more monetary and fiscal stimulus, and fast, to restore confidence. Yet that would run counter to Beijing’s efforts to leverage the economy to weed out excesses and increase trust in its economy.
Odds are, Xi will opt for Door No. 1 and pursue further stimulus. The last thing a strongman leader wants while waging a trade war is letting President Donald Trump think China is on the ropes.
Yet which way Xi will go is keeping the globe in suspense.
Mainland factory activity improved only slightly in September, extending the sector’s decline into a sixth month — the most notable slump since pre-Covid 19. After a growth spurt to start the year, Asia’s biggest economy is at risk of a deeper slowdown.
China’s official manufacturing purchasing managers’ index edged up to 49.8, versus 49.4 in August. The non-manufacturing measure of activity covering construction and services dropped a greater-than-expected 0.3 points to 50 from 50.3 last month. Anything below 50 means the sector is contracting.
“Economic momentum is weak in the third quarter,” says economist Zhiwei Zhang, president at Pinpoint Asset Management.
Yet of all the things most economists didn’t have on their Bingo cards this year, China faring better amid tariffs than the U.S. may top the list.
Some will debate this premise. The great U.S. recession many were certain was on the way seems nowhere to be found. Far from a “disaster,” the economy Trump inherited is proving to be stronger and more resilient than Wall Street expected.
Cracks are appearing, though, as recent trends in employment, consumer confidence and housing activity suggest. In the meantime, inflation remains higher than hoped, something Trump’s tariffs are sure to make worse.
China’s economy, meanwhile, is probably no one’s idea of healthy as deflation persists, consumer spending drags, and the property crisis rolls on. Yet somehow, Xi’s economy is holding its ground despite 30% tariffs and a bull market in global uncertainty.
As Zhang adds, “export activities have been surprisingly resilient so far this year and helped to partly offset the weak domestic demand.”
Not everywhere, of course. In August, Chinese consumer prices dropped at their fastest rate for six months, a sign that deflation remains a significant struggle for Xi’s Communist Party.
“Since the gross domestic product growth was above 5% in the first half,” Zhang says, “the government may tolerate the slowdown in the second half as long as it doesn’t jeopardize the full-year growth target of 5%.”
Now that’s really got to ruin Peter Navarro’s year. The Trump advisor who co-authored a book titled “Death by China” is seeing the trade war he masterminded boomerang back on his boss. Look no further than Trump 2.0 moving to bail out U.S. farmers hurt by his tariffs. Just like during Trump 1.0.
Look, too, to the “America First” president’s bizarre $20 billion lifeline for Argentina. All the while, MAGA-loving President Javier Milei is moving to supply China with the soybeans and other goods that Xi’s not buying from the U.S.
As the trade war zigs and zags in ways Trump World didn’t see coming, China standing its ground reasonably well is trolling the White House better than any mean tweet could.