China’s Great Wall of Worry Extends

Chinese gross domestic product (GDP) growth decelerated to 4.8% y/y in Q3 from Q2’s 5.2%, keying an oft-recited hard-landing chorus: China’s economy, many commentators we follow allege, is on the verge of collapse from its ongoing property bust, deflation (broadly falling consumer prices) and trade war with the US.^[i] We think all three purported negatives, to varying degrees, are part of the backdrop. But in our view, the problem these reflex headline takes present to investors is they are all well-known—and surprise generally moves markets most. On that front, we think China’s economy and trade continue chugging along better than papers we read warn, boosting global growth and stocks.

Reports highlighted Q3 Chinese growth as the slowest since Q3 2024’s 4.6%.^[ii] They characterised it as “fragile,” afflicted with “deepening structural imbalances” and desperate for stimulus, as economists and analysts anxiously await a new governmental five-year economic growth plan to dig China out of its alleged rut.^[iii]

The same sentiment accompanied the latest monthly data releases, with a focus on “China’s lopsided growth.”^[iv] September retail sales’ 3.0% y/y was the slowest since last November, whilst year-to-date fixed asset investment fell -0.5% versus 2024’s first nine months, the first contraction in five years.^[v]

Coverage even downplayed faster industrial production growth. September factory output accelerated from August’s 5.2% y/y to 6.5%—the upper end of its growth range over the past two years.^[vi] Rather than hail industrial strength, we saw coverage claiming it signals China’s supposed export dependence “papering over deeper vulnerabilities” as domestic consumption and investment falter—another shoe to drop weighing on sentiment.^[vii]

Yet despite the supposed problems under the bonnet, GDP is tracking the government’s official full-year growth target of roughly 5%.^[viii] Cumulative GDP growth is 5.2% y/y in 2025’s first three quarters.^[ix] Yes, this was driven partly by surging exports as year-to-date outbound Chinese shipments rose 6.2% y/y—but that was as exports to the US fell -16.9%.^[x] China’s non-US trade is more than covering American losses.^[xi] To us, this shows the opposite of dependence—how China is benefitting from broad global demand.

Now, here too, we find Chinese exports to the rest of the world aren’t without their critics. For example, the EU is planning a 50% tariff on steel imports and cutting its tariff-free quota by -47%.^[xii] Mexico, too, is considering similar.^[xiii] But that would affect a sliver of total Chinese trade and GDP—not a material headwind at this point, in our view.^[xiv]

Moreover, like in the developed world, China’s economy is mostly services, which generates 56% of GDP.^[xv] In Q3, services added 3.0 percentage points to headline growth, topping exports, as year-over-year expansion exceeded 5% for the fourth straight quarter.^[xvi] Meanwhile, on the expenditures side, goods and services consumption’s share of GDP growth expanded to 56.5%.^[xvii] With so much attention on exports and housing, we think consumption’s and services’ steady growth quietly undercuts popular notions the economy is “unbalanced” and crippled by an extended property downturn.^[xviii]

That isn’t to say China has no issues. Yet we find those that exist (e.g., slumping real estate and slowing household spending) are widely documented. All in all, growth in China may cool some, but to us it will likely still be sufficient to support global demand. And that would be before any stimulus further boosts domestic consumption.

For instance, most observers we follow attribute retail sales’ slowdown to fading effects from China’s goods trade-in programme. Whether the Politburo acts to provide additional consumer-centred support is an area of extensive debate amongst China watchers we read. Some think policymakers will do what it takes to ensure growth (and social harmony, which we have long witnessed), whilst others anticipate more focus on structural reforms—like to its pension system—aimed at the country’s long-term development.

Regardless, with economic alarm still elevated—and sentiment so low—we think attitudes toward China, global growth and trade are poised for positive surprise. We see Chinese growth trucking on without big stimulus, yet few seem able to fathom it, which we think says more about sentiment than reality in the world’s second largest economy—more bricks in China’s proverbial wall of worry for stocks to climb.