Tens of millions of people have fallen out of formal employment into the gig economy, working for ride-hailing and delivery platforms for long hours, low pay, and inadequate social security benefits. This mass displacement of labor coincides with China's economy expanding at its slowest pace in more than three years, registering 4.3% growth in the second quarter. This figure missed forecasts and fell below the lower end of Beijing's 4.5% to 5.0% full-year target.
Gross domestic product growth in April-June eased from 5.0% in the first quarter of the same year. The slowdown deepens concerns about the country's unbalanced growth model, driven by weak household consumption, a property downturn, and slowing investment.
Workers Bear the Brunt
Domestically, wages have been sluggish, even declining in some sectors. Industrial overcapacity, U.S. tariffs, and price wars among producers have fueled widespread layoffs in factories. Weak demand and faster AI adoption have simultaneously slowed white-collar job creation, intensifying the pressure on the working class.
The property downturn, ongoing since 2021, has further eroded household wealth and slashed employment in construction. Data from January to June of the current half-year showed property investment contracting 18% year-on-year, while home prices also eased. This collapse in a key sector has left countless workers without stable income or prospects.
Investment is slowing across the board. China's fixed-asset investment shrank 5.7% year-on-year in the current half-year, from January to June. Even state-sector investment dropped 2.3% during this period. Local governments, once drivers of manufacturing and infrastructure, are now cutting costs, including payroll, exacerbating the economic squeeze on public sector workers.
The State's Priorities
The data adds pressure on Beijing to deliver more stimulus, yet the state remains hesitant. Many analysts believe a closely watched end-July meeting of the Communist Party's Politburo may not signal major steps, citing concerns over ballooning debt. Zhiwei Zhang, chief economist at Pinpoint Asset Management, doubted the Politburo would signal a wider fiscal deficit, noting the government's reluctance to spend fiscal resources and build up debt.
While a central bank official stated monetary conditions were "relatively loose" and pledged to support domestic demand, there is no consensus among policymakers on how to achieve this. Andy Ji, an analyst at ITC Markets, identified the investment downturn as the "primary drag" on growth. He highlighted the "deeply uneven growth momentum" of a high-tech industrial engine running alongside cratering domestic consumption and investment.
Capital's Export Fix
The onus is increasingly on exports to drive growth, a strategy that prioritizes external markets over the purchasing power of the domestic workforce. Trade data on Tuesday revealed external demand was compensating for China's internal weakness, with exports jumping 27% and beating expectations. This surge is riding the global AI boom and partly reflects frontloading by U.S. retailers securing inventories for Black Friday and Christmas sales before expected tariff hikes later this year.
This strategy of wage suppression and export dependence fuels international trade conflicts. U.S. President Donald Trump's visit to China in May of the same year preserved a fragile detente. However, a universal 10% U.S. tariff, imposed by Washington in February of the same year, expires in 8 days from today, on July 24. It is widely expected to be replaced with higher levies. The U.S. Trade Representative has proposed a 12.5% tariff on imports from China and elsewhere following an investigation into alleged forced labor, a claim Beijing denies. A final decision is expected in coming months.
The EU, which faced a trade deficit with China averaging $1 billion a day last year, plans to bolster protections of its industrial complex from Chinese competition. Larry Hu, Macquarie Group's chief China economist, noted Beijing has little incentive to lean off external demand for now. He stated that only when exports fail will the government do more on domestic demand to achieve its growth target, further cementing the reliance on global capital flows rather than internal worker prosperity.