China · Economy
China's spending problem: why its people won't buy, and why the world, India included, is paying for it
Consumption is about 56% of China's GDP against 70% in most economies. The unsold goods flood abroad, and India's $112 billion deficit shows where they land.
China's economy grew 4.5 per cent in the July–September quarter, the National Bureau of Statistics said on 19 October, a little faster than the three-year low of 4.3 per cent in the quarter before. The headline hides the real problem. Chinese households are not spending, and the goods they do not buy are being shipped to the rest of the world at ever lower prices. For India, which ran a goods deficit of about $112 billion with China last financial year, that is not an abstract worry.
The lowest consumption of any major economy
Consumption makes up only about 56 per cent of China's GDP. In most economies it is 70 per cent or more. China's share is about 10 percentage points below Japan's in the 1990s, at the depth of its long stagnation, and lower than that of any major economy in the past 100 years.
That is a warning sign that China's growth model is broken. Growth that topped 10 per cent a year in the early 2000s is now below 5 per cent, and debt has climbed to alarming levels.
The latest figures show the imbalance. Manufacturing output grew 5.9 per cent in the third quarter. Retail sales of consumer goods rose just 1.1 per cent in the first nine months of 2026, and consumer prices were up only 0.9 per cent in September. The factories are running; the shoppers are not.
The property hole
The biggest drag is housing, for years the main store of Chinese family savings. Investment in real-estate development fell 20.6 per cent in January–September, official data show, and construction shrank 4.4 per cent in the third quarter. New-home prices in Beijing, Shanghai, Guangzhou and Shenzhen were still 0.5 per cent lower in September than a year earlier, although the declines are narrowing.
When the main asset a family owns keeps losing value, the family feels poorer, saves more and spends less, which deepens the slump.
Where the surplus goes
China cannot cut production without mass layoffs, so the extra output goes abroad: more and more of it, at lower and lower prices. Exports rose 16.4 per cent in yuan terms in the first three quarters. The trade surplus reached $938.1 billion in nine months, AP reported from customs data, after a record $1.2 trillion in 2025; September alone added $133.5 billion.
Selling abroad below fair value is called dumping, and countries from Europe to Asia now complain that China's excess production is killing their own manufacturing.
Beijing's answer
Beijing says it sees the problem. In July the State Council approved a plan for the 15th Five-Year Plan period (2026–30) that aims to lift retail sales to about 60 trillion yuan by 2030, from 50.1 trillion in 2025, and to "significantly increase" household consumption's share of GDP. The IMF's board said in February that "transitioning to a consumption-led growth model should be the overarching priority".
Targets alone, though, do not change the habits of families who have watched their main asset lose value.
What it means for India
India imported $131.6 billion of goods from China in 2025-26 and exported about $19.5 billion, commerce ministry figures show. The Directorate General of Trade Remedies has opened a run of anti-dumping investigations into Chinese goods this year, covering electrical steel, forklifts, caprolactam and drug ingredients such as penicillin G and montelukast. In the penicillin G case, India's only producer, revived under the production-linked incentive scheme, says it was forced to cut prices to match imports.
Raisina Wire analysis
China's spending gap has become an Indian policy question. Every quarter that Chinese households hold back, more steel, chemicals and pharmaceutical ingredients look for buyers abroad, and India, large, growing and close, is an obvious market. Anti-dumping duties give domestic producers breathing room, but they work case by case and take months.
The risk is sharpest for the industries New Delhi is trying to build. Production-linked incentives can pay for new plants, but they cannot set the price of the imports those plants compete with.
There is another side. India's exports to China rose by more than a third last year. If Beijing does manage to turn its savers into spenders, China could become a larger market for Indian goods and services. Until then, India should expect the flood to keep coming.