“China’s Finance Ministry issues implementation plan for personal consumption loan interest subsidy policy. Personal consumer loans used for eligible expenses to receive interest subsidies from Sep 2025 to Aug 2026. China sets interest subsidy cap of 3,000 Yuan per borrower per lender on personal consumer loans. Personal consumer loan interest subsidy applies to key sectors, including autos, elder care, education, home improvement, and electronics.”
However, economists had mixed views on Beijing’s latest efforts to boost borrowing and private consumption. David Scutt, market analyst at Stone X and Forex.com, remarked:
“China has been talking about boosting consumption for years, the latest move focused on access to consumer finance. But you can lead a horse to water, but you can’t make it drink. Credit demand comes with confidence.”
Economic Data Underscore Labor Market Issues
July’s manufacturing sector PMI and June’s unemployment, and retail sales figures painted a gloomier picture of the Chinese economy. Key economic data trends included:
- The highly scrutinized S&P Global China General Manufacturing PMI dropped from 50.4 in June to 49.5 in July, falling below the neutral 50 level. A further contraction in new export orders weakened new order growth. Rising input prices and lower output prices pressured profit margins further, forcing manufacturers to manage costs, including cutting staff levels.
- Retail sales increased 4.8% year-on-year in June, slowing sharply from a 6.4% rise in May.
- While the unemployment rate remained unchanged at 5% in June, July’s Manufacturing PMI survey suggests higher unemployment going into the third quarter.
Falling house prices, manufacturing sector woes, deteriorating labor market conditions, and the US and China’s failure to reach a trade deal could further impact consumer confidence. The narrative has changed little since the first quarter despite Beijing’s efforts to boost consumption and the US and China averting a full-blown trade war.
Youth Unemployment and Consumer Sentiment Challenge Beijing’s GDP Growth Target
In March, we identified several key factors that could limit the effectiveness of Beijing’s monetary policy and fiscal stimulus, including youth unemployment and depressed consumer sentiment. While the national unemployment rate is 5%, youth unemployment eased to 14.5% in June, down from 14.9% in May.
Alicia Garcia Herrero, Natixis Asia Pacific Chief Economist, highlighted issues that manufacturing sector workers face, stating:
“It is China’s manufacturing workers who suffer while exports – and the economy – keep growing despite the U.S. tariffs. It’s the people who are hammered by this model of huge competition, lower prices, thus you need to lower costs, thus you need to lower wages. It’s a spiral. The model is crazy. I’m sorry, but if you need to export at a loss, do not export.”
Garcia Herrero also poured cold water on optimism about a recent fall in the national unemployment rate, stating:
“Statistics will not reveal Chinese workers as the main losers in the trade war because they will not become unemployed, but they will get unpaid leave of absence or work fewer hours.”
In 2024, around 30% of China’s workforce was in industry, including manufacturing, construction, and mining. Manufacturing and real estate woes have impacted the labor market.
However, the recent pickup in services sector activity and job creation could ease the strain. Accounting for almost 50% of the workforce, a continued transition to a consumption-driven economy may resolve some of Beijing’s challenges. In July, the S&P Global China Services PMI rose from 50.6 in June to 52.6. Firms reported a pickup in external demand, rising new work, and staffing levels increasing at the most marked pace since July 2024.
Market Reaction:
Trade headlines continue to drive market sentiment. The 90-day trade war truce extension and Beijing’s latest stimulus pledges have bolstered demand for Mainland China-listed stocks.
The CSI 300 and the Shanghai Composite Index have risen 2.96% and 3.40% in August to date, contributing to 6.68% and 10.26% gains year-to-date.
Meanwhile, the Hang Seng Index leads the way, surging 28.05% YTD, outperforming Mainland equity markets and the Nasdaq Composite Index (+12.44% YTD).