China’s manufacturing strength cannot offset weak domestic demand

China’s manufacturing expansion is failing to offset weak household consumption, subdued private investment and a prolonged property downturn, according to a report. It argues that economic recovery requires stronger public confidence and incentives, rather than relying solely on state-directed industrial growth.

New Delhi: China’s economic difficulties stem from a contradiction embedded in President Xi Jinping’s development strategy, as efforts to expand manufacturing are being pursued when the country is suffering from weak domestic demand, a new report has said.

Expanding advanced manufacturing and strategic industries is generating major gains in electric vehicles and batteries. However, weak household consumption, subdued private investment and a prolonged property downturn continue to constrain broader economic recovery, the report from Nepal Aaja said.

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China’s economy grew 4.6 per cent in the first nine months of 2026, but underlying indicators point to continued weakness in domestic demand. Fixed-asset investment contracted 7.2 per cent, property investment dropped 20.6 per cent, and retail sales growth fell to 1.1 per cent in September.

The Chinese administration is prioritising sectors that are not necessarily addressing the insecurities holding back households, private businesses and local economies.

Xi Jinping’s development strategy has increasingly prioritised technological self-reliance and strategic industries, supported by state-led investment and stronger Party oversight, while ignoring concerns weighing on households and businesses, the report noted.

A country cannot rely indefinitely on manufacturing strength to compensate for weak household consumption and other constraints that China is facing, the publication said.

China’s problems can be solved only through economic incentives and public confidence, rather than the current practice of issuing directives from the centre.

The Communist Party’s Fifth Plenum recently emphasised Party governance and discipline as the leadership faces growing pressure to set economic priorities that ensure equitable distribution of benefits.

“Stronger oversight may help Beijing enforce decisions and curb waste, but it also raises a question that has become increasingly relevant under Xi. China’s headline growth figures can obscure the unevenness of its recovery,” the report noted.

China needs to strengthen its technological capabilities to avoid external dependence amid intense competition with the United States. However, industrial expansion and domestic economic recovery must not be misconstrued as the same thing.

“Households that feel less secure about their assets have reasons to save rather than spend, while local governments facing financial pressure have less room to support services and stimulate economic activity. Even when the state directs investment towards new industries, it cannot quickly replace the confidence and spending that a healthier property market once helped sustain,” the report said.