China’s economy of extremes

It’s been quite an incredible year for China’s economy. Even with a near-50 per cent average tariff rate on exports to the United States, the economy was able to redirect its exports, to the extent its gross domestic product has grown around 5 per cent. And there’s enough to suggest that may continue.

Still, over China’s entire economy, sentiment could best be described as patchy. The housing cycle downtrend is ongoing, with no visible green shoots. Consumers seem to be quite price sensitive, with activity holding up but competition intense. And tariffs are a feature of every conversation. The unpredictability of tariffs has brought uncertainty to business decisions in general.

{video}

On the policy front, China’s next five-year plan, its 15^th, the currently in focus. The adjustments involved could best be described as tilts, rather than anything more substantial.

Consumption has received a little more emphasis, but ‘new quality productive forces’ remain the core of the economic strategy.

Outside China I have heard talk the economy’s export performance isn’t sustainable. I don’t think that’s accurate at all. The strategy does have some side effects – in soft prices and consumption – but neither of those seem to be at risk of forcing a change in approach.

Perhaps part of the analytical challenge is China’s economy is one of extremes. On one end, it is the world’s largest exporter of electric vehicles, and dominates global production in shipbuilding, lithium batteries, solar panels and more.

At the other end are the strikingly low costs found in some areas. To give one example, a minimum parcel delivery price was recently introduced at RMB1 per parcel. That’s roughly US15 cents.

In many ways that’s the secret sauce in China’s export recipe. A super-efficient low-cost China and industrial powerhouse China have come together to drive not just 2025’s incredible export performance, but the economy’s ongoing performance over time.

To me that seems quite sustainable.

Richard Yetsenga is Chief Economist and Head of Research at ANZ