China’s economy is a story of contrasts. In July 2025, exports soared — up 7.2% from last year, beating all forecasts. This burst of global demand kept growth strong, with GDP rising 5.3% in the first half of the year. For a moment, it seemed like China was unstoppable.

But at home, the mood is far less bright. Factories are slowing down. People are spending less in stores. Most city dwellers would rather save than shop. Fear has replaced confidence.

The root of the trouble lies in real estate. Home prices are still falling, and new investment in property has plunged by 12%. With housing making up a quarter of China’s economy, this is a storm that touches every life.

Add to this the fierce battles between companies. Price wars in cars and solar panels mean less profit for all. Workers worry about their jobs and their paychecks.

What’s more, rising numbers don’t tell the whole truth. While official data says the economy is growing fast, wages and business profits lag behind. People feel left out and uncertain.

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Strong Export Performance: China’s July 2025 exports surged 7.2% year-over-year, exceeding economist predictions of 5.4-5.8% growth. This robust export performance has helped maintain overall GDP growth of 5.3% in the first half of 2025, surpassing the government’s “around 5%” target.

Weakening Domestic Indicators: However, domestic economic data from August 15 painted a more concerning picture:

Industrial output slowed to 5.7% in July (down from 6.8% in June)
Retail sales growth weakened to 3.7% (down from 4.8% in June)
Consumer confidence remains low, with 62.2% of urban depositors preferring savings over consumption

The Property Sector Crisis

The real estate sector continues to be China’s most persistent challenge. Property investment has fallen 12% year-to-date in 2025, deepening from an 11.2% decline in the first half. New home prices across 70 major cities dropped 0.3% in July, suggesting the housing market hasn’t reached its bottom yet.

This is particularly problematic since real estate accounts for roughly 25% of China’s economy and has traditionally been a major source of local government revenue.

Structural Challenges

“Neijuan” (Hyper-Competition): Chinese policymakers are grappling with destructive price wars across industries from electric vehicles to solar panels. This hyper-competition is eroding profit margins, forcing cost-cutting that hurts employment and wages, creating a vicious cycle with weak consumer confidence.

Deflation Concerns: There’s a significant disconnect between official GDP figures and how people actually feel about the economy. While real GDP grew 5.2% in Q2 2025, nominal GDP (unadjusted for inflation) grew only 3.9% – the widest gap since late 2009. Since salaries and business profits are stated in nominal terms, this explains why businesses and consumers don’t feel the supposed economic strength.

Looking Forward

The export strength that’s currently supporting growth is vulnerable to global demand shifts and potential trade tensions. Economists expect the second half of 2025 to be weaker than the first half.

The fundamental challenge remains China’s struggle to rebalance from an investment and export-driven model toward domestic consumption. Despite years of promises and some policy measures like subsidies for appliances and cars, consumer spending remains tepid.

This analysis suggests that while China’s economy shows resilience through exports, the underlying domestic weaknesses – particularly in property, consumer confidence, and deflationary pressures – present significant challenges for sustained economic expansion.

China’s Two-Track Economy: Deep Analysis and Singapore Implications

Understanding the Two-Track Phenomenon

China’s economy in 2025 exemplifies a classic “two-track” structure where external-facing sectors thrive while domestic-oriented sectors struggle. This divergence creates a complex economic landscape with far-reaching implications for regional partners like Singapore.

Track One: Export Resilience

July 2025 exports: 7.2% year-over-year growth, exceeding forecasts
First-half performance: 5.9% export growth supporting overall GDP
Industrial competitiveness: Maintained despite trade tensions
Global market share: Sustained through competitive pricing and manufacturing efficiency

Track Two: Domestic Weakness

Retail sales: Slowing to 3.7% in July 2025 (weakest pace of the year)
Property sector: 12% decline in housing investment year-to-date
Consumer confidence: 62.2% of depositors prefer savings over consumption
Industrial output: Decelerated to 5.7% in July from 6.8% in June

Deep Structural Analysis

1. The Property Sector Crisis

The real estate downturn represents more than a cyclical adjustment—it’s a structural transformation affecting multiple economic layers:

Direct Impacts:

Property accounts for ~25% of China’s economy
Major source of local government revenue through land sales
Employment effects across construction, materials, and related services
Wealth effect on household consumption patterns

Systemic Implications:

Local government fiscal constraints
Banking sector exposure to property loans
Shadow banking vulnerabilities
Urban development model sustainability

2. The “Neijuan” (Hyper-Competition) Challenge

This represents a fundamental shift in China’s competitive landscape:

Market Dynamics:

Oversupply across multiple sectors (EVs, solar panels, food delivery)
Price wars eroding profit margins
Consolidation pressures on weaker players
Innovation vs. price competition trade-offs

Employment and Wage Effects:

Corporate cost-cutting to maintain margins
Reduced hiring and wage growth
Skill premium changes
Regional employment disparities

3. Deflationary Pressures and the “Tigan” (Real Feel) Gap

The disconnect between official statistics and lived experience:

Statistical Divergence:

Real GDP: 5.2% (Q2 2025)
Nominal GDP: 3.9% (Q2 2025)
Widest gap since late 2009

Real-World Impact:

Business revenues and salaries in nominal terms
Consumer purchasing power perception
Investment return expectations
Debt burden relative to income

Singapore: Vulnerability and Opportunity Matrix

Trade and Economic Linkages

Direct Exposure Channels:

Trade Volume: China is Singapore’s largest trading partner (~15% of total trade)
Re-export Hub: Singapore serves as intermediary for China-ASEAN trade
Manufacturing Supply Chains: Integrated production networks
Services Exports: Financial, logistics, and professional services to Chinese firms

Financial Sector Interconnections:

Banking Exposure: Singapore banks’ loans to Chinese entities
Capital Markets: Chinese companies listed on SGX
Wealth Management: Chinese HNWI assets in Singapore
Currency Flows: RMB internationalization through Singapore

Sectoral Impact Analysis

1. Manufacturing and Logistics

Current Vulnerabilities:

Reduced Chinese demand for intermediate goods
Supply chain disruption risks
Container throughput at Singapore ports
Warehousing and distribution services

Adaptive Opportunities:

Alternative supply chain routing (China+1 strategy)
Value-added logistics services
Technology and digitization of supply chains
Sustainable logistics solutions

2. Financial Services

Risks:

Reduced Chinese corporate financing needs
Lower trade finance volumes
Wealth management client risk aversion
Currency volatility impacts

Strategic Positioning:

Green finance for China’s energy transition
Digital financial services expansion
Risk management solutions
Cross-border payment innovations

3. Real Estate and Construction

Direct Effects:

Reduced Chinese property investment in Singapore
Lower demand from Chinese buyers
Construction material price volatility
Development project financing

Market Dynamics:

Flight-to-quality investment patterns
Safe-haven asset preferences
Diversification of investor base
Sustainable development focus

Policy Response Framework for Singapore

1. Economic Diversification Acceleration

Market Diversification:

Strengthen ties with India, Southeast Asia, and other emerging markets
Develop new trade corridors (Middle East, Africa)
Enhance digital economy partnerships
Promote sustainable economy transitions

Sectoral Rebalancing:

Reduce over-reliance on China-centric industries
Develop domestic demand drivers
Strengthen regional economic integration
Foster innovation-driven sectors

2. Financial Resilience Building

Banking Sector Preparedness:

Stress testing for China slowdown scenarios
Diversified lending portfolios
Enhanced risk management frameworks
Capital adequacy buffers

Market Infrastructure:

Alternative financing mechanisms
Digital payment system robustness
Regulatory frameworks for new financial products
Cross-border capital flow monitoring

3. Strategic Positioning Enhancement

Hub Function Evolution:

Digital services hub development
Sustainable finance center positioning
Innovation and R&D hub strengthening
Regional headquarters attraction

Competitive Advantage Maintenance:

Rule of law and regulatory stability
Skilled workforce development
Infrastructure modernization
Business environment optimization

Long-term Strategic Implications

1. Structural Economic Shifts

China’s rebalancing from investment-export model to consumption-driven growth will be gradual but persistent, requiring Singapore to adapt its economic positioning accordingly.

2. Geopolitical Considerations

The two-track economy reflects deeper structural challenges that may influence China’s international economic engagement, affecting regional trade patterns and diplomatic relationships.

3. Innovation and Technology

China’s focus on addressing “neijuan” through innovation rather than pure price competition may create new opportunities for Singapore’s technology and innovation sectors.

Recommendations for Singapore

Short-term (1-2 years):

Monitor and assess exposure levels across sectors
Enhance early warning systems for economic spillovers
Strengthen trade and investment diversification initiatives
Maintain financial sector resilience measures

Medium-term (3-5 years):

Accelerate regional economic integration beyond China
Develop new growth sectors less dependent on Chinese demand
Enhance innovation ecosystem to capture new opportunities
Strengthen sustainable economy positioning

Long-term (5+ years):

Position Singapore as a bridge between China and other markets
Develop next-generation hub functions (digital, green finance)
Build resilient and adaptable economic structures
Maintain strategic relevance in evolving global economy

Conclusion

China’s two-track economy presents both challenges and opportunities for Singapore. While the immediate risks are manageable given Singapore’s economic diversification and financial resilience, the long-term implications require proactive strategic positioning. Success will depend on Singapore’s ability to adapt its hub functions, diversify its economic base, and maintain its competitive advantages while navigating an increasingly complex regional economic landscape.

The key is not to decouple from China but to build a more balanced and resilient economic relationship that can withstand cyclical downturns while capitalizing on structural opportunities that emerge from China’s ongoing transformation.

China’s Two-Track Economy: Deep Analysis and Singapore Implications