China’s Economy Loses Momentum Amid Spending and Investment Slum
China’s economy lost momentum in November as retail sales and investment weakened. Can policymakers revive domestic demand and restore confidence ahead of a 2026 growth pivot?
China’s economic slowdown deepened in November, raising fresh concerns about the country’s ability to rebalance growth towards household spending as policymakers intend from 2026. A broad set of weaker-than-expected data showed that domestic demand remains fragile, even as exports continue to provide a temporary buffer.
Retail sales, a key gauge of consumer activity, recorded their weakest year-on-year growth since 2022. At the same time, investment indicators deteriorated further, highlighting the scale of the challenge facing China’s leadership as it tries to shift the economy away from debt-fuelled construction and export dependence.
“Boosting domestic demand in 2026 looks to be a top priority for policymakers, according to recent communications from the Politburo meeting and the Central Economic Work Conference,” ING said in a recent report. Authorities have promised “special actions to boost consumption” alongside measures aimed at lifting household incomes, but November’s data suggests results are proving elusive.
Consumer spending falters
Retail sales growth slowed sharply to 1.3% year-on-year in November, down from 2.9% in October, marking the weakest pace in nearly two years. ING attributed much of the slowdown to the fading impact of China’s trade-in policy, which encouraged households to replace older goods with newer ones at discounted prices.
Initially, the programme provided a boost as consumers brought forward purchases to take advantage of incentives. Over time, however, it failed to generate sustained demand. Instead, it appears to have pulled spending forward, leaving a vacuum once the initial surge passed.
The impact was most visible in durable goods. Sales of household appliances plunged 19.4% compared with a year earlier, dragging down overall retail performance. Auto sales also fell 8.3%, partly reflecting earlier purchases made under incentive schemes.
China’s ongoing transition to electric vehicles has further distorted consumption patterns. Petrol sales dropped 8% year-on-year, as fuel demand declined amid the shift away from internal combustion engines. While this reflects long-term structural change, it has weighed on headline retail figures in the short term.
Some sectors showed resilience. Spending on catering, cosmetics, food staples, and gold and jewellery outperformed broader trends, suggesting consumers are still willing to spend selectively. But these pockets of strength were not enough to offset the widespread weakness across discretionary categories.
Investment slowdown deepens
The malaise extended beyond consumption. Fixed asset investment, which includes spending on infrastructure, manufacturing capacity and real estate, contracted more sharply in November. Both public and private investment weakened, with private-sector spending falling at a faster pace.
While public investment could recover next year with additional fiscal support, economists are more concerned about private investment, which is seen as a clearer indicator of business confidence. Continued hesitation by private firms suggests lingering uncertainty about demand, profitability and policy direction.
This reluctance underscores the difficulty China faces in reigniting animal spirits within its private sector, a crucial component of sustainable, consumption-led growth.
Property sector remains a heavy drag
The property market continues to be one of the biggest headwinds for the economy. Home prices across China’s 70 major cities fell again in November, with declines in the resale market outpacing those for new homes.
From their peak, new home prices are down more than 12%, while used-home prices have fallen by over 20%. These declines have direct consequences for household wealth and confidence, limiting consumers’ willingness to spend and reinforcing precautionary saving.
Property investment also contracted sharply, highlighting that the housing downturn remains far from resolved. Policymakers have signalled renewed efforts to stabilise the sector, including support for affordable housing and initiatives to reduce excess supply. However, it remains unclear whether these measures will be sufficient to engineer a lasting turnaround.
China’s property troubles date back to at least 2021, when authorities imposed strict limits on developers’ borrowing to curb financial risk. The subsequent collapse of major players, most notably Evergrande, sent shockwaves through the economy and left a prolonged drag that continues to weigh on growth.
Industrial production stands out
One relative bright spot in the November data was industrial production, which outperformed other major indicators. Manufacturing output has benefited from resilient export demand and policy support for high-tech sectors, including electric vehicles, batteries and renewable energy equipment.
However, analysts caution that industrial strength alone cannot carry the economy indefinitely. Without a meaningful recovery in domestic consumption and private investment, production gains risk becoming increasingly disconnected from household incomes and confidence.
A difficult road ahead
The November data paints a sobering picture for policymakers. While China has avoided a sharp downturn, the slowdown is becoming more entrenched, and the transition to a consumption-driven growth model remains fraught with challenges.
As officials look towards 2026, boosting domestic demand is clearly the stated priority. The difficulty lies in restoring confidence among households and businesses after years of property market stress, regulatory uncertainty and uneven recovery.
For now, China’s economy appears caught in a holding pattern — supported by exports and selective industrial strength, but weighed down by weak spending and investment. Whether upcoming policy measures can break that cycle will be one of the defining economic questions of the next two years
Conclusion
China’s November data underscores how deeply entrenched the economic slowdown has become. Weak consumer spending, fading policy stimulus and a prolonged property downturn are combining to weigh on growth just as policymakers hope to pivot towards a more consumption-led model. While industrial production and exports offer some support, they are no longer sufficient to offset softness in household demand and private investment. The challenge for China’s leadership is no longer just about stabilising growth, but about rebuilding confidence in an economy adjusting to slower, more structurally constrained expansion.
Looking Forward
Looking ahead to 2026, boosting domestic demand is set to become the cornerstone of China’s economic strategy. Policymakers are likely to roll out more targeted consumption incentives, income-support measures and property stabilisation policies. However, their success will depend on whether households feel secure enough to spend and businesses confident enough to invest. Without a credible turnaround in the property sector and clearer signals to the private sector, efforts to rebalance growth may fall short. The coming months will be critical in determining whether China can shift from policy-driven support to a more durable, demand-led recovery.