China Faces Tough Balancing Act: Growth Goals vs. Rising Jobless Pressure

The Beijing Headache: Price Wars, Unemployment, and Weak External Demand

Manufacturing sector data from China surprised to the upside this week, raising expectations that Beijing will achieve its 5% GDP growth target.

The RatingDog China General Manufacturing PMI unexpectedly rose from 49.5 in July to 50.5 in August, crucially above the neutral 50 level. Key highlights from the August survey included new orders rising at the most marked pace since March. Average selling prices were flat, snapping an eight-month downtrend.

However, there were also some low points for Beijing to consider, including the highest rate of input price inflation since November 2024 and further job cuts.

Rising costs and intense competition continue to affect profit margins across the industrial sector. Industrial profits declined 1.7% (January – July) year-on-year after dropping 1.8% (year-to-date) year-on-year in June.

EV Price Wars and Market Competition

Price wars have strained profit margins, forcing firms to manage costs and reduce staffing levels. China’s unemployment rate increased from 5% in June to 5.2% in July. Record graduate numbers added to the labor market strain. Youth unemployment soared 17.8% in July, up from 14.5% in June.

China Beige Book recently quoted the media regarding the ongoing price war among electric vehicle (EV) manufacturers, stating:

“China’s campaign to stamp out a ferocious EV price war seems to be having limited effect, w/all of the nation’s top 20 auto brands either keeping discounts intact, deepening them or only slightly reducing them in July.”

Despite intense competition, Chinese EV makers have reported impressive delivery numbers in August. According to CN wire, NIO delivered 31,305 vehicles, up 55.2% year-on-year (YoY). Meanwhile, Xiaopeng Motors reportedly delivered 37,709 units, up 169% YoY, with September deliveries expected to break 40,000.

Commenting on regional car brands and China’s auto sector, Brian Tycangco, editor at Stansberry Research, stated:

“The only Japanese and Korean car brands that will survive the China onslaught will likely be Toyota, Honda, Kia/Hyundai, Vinfast. The others just don’t have a real strategy to compete and continue to offer the same tired and boring products at premium prices.”

Stifling the competition would give Chinese automakers a stronger foothold and potentially ease price pressures.

Global Trade and BRICS Unity

Addressing external demand, price wars, the labor market, and domestic consumption are key for Beijing.

India, Iran, and Russia were among attendees at a China summit as Beijing bids to weaken the US administration’s influence on global trade terms. Rebuilding ties with India and establishing a trade pact with nations affected by US tariffs could develop a broader economy independent of the US.

China would likely benefit significantly from such a development. Stronger trade ties with India, Russia, and other nations could address weak external demand, ease domestic competition, boost output, and support the labor market.

The latest developments may bring BRICS greater unity, a potential bugbear for President Trump. With US-China trade talks resuming last week, Trump’s reaction to the China summit and how aggrieved nations respond will be crucial.

India recently found itself in the US administration’s sights over oil imports from Russia. In the lead-up to the US Presidential Election, Trump threatened 100% tariffs on the BRICS nations, warning:

“If you abandon the dollar, you’re not doing business with the United States because we will impose a 100 percent tariff on your goods.”

Crucially, a unified BRICS bloc and stronger trade ties between China, India, Russia, and other nations could dampen the effect of further tariff hikes on trade. China has a vested interest in BRICS becoming a successful economic powerhouse.

China President Xi Calls for Closer Ties

On Monday, September 1, China President Xi Jinping spoke at the summit. He reportedly stated:

“We will always stand on the side of international fairness and justice, oppose hegemonism and power politics. We need to better align development strategies and promote belt and road. Should leverage the strength of markets, improve trade, enhance green energy, science, tech innovation, and AI cooperation. Support the multilateral trading system.”

Natixis Asia Pacific Chief Economist Alicia Garcia Herrero recently commented on China’s outlook for terms of trade, stating:

“Rerouting will be much harder in the second half. So that’s going to hit Chinese exports indirectly. So, that’s why the second half is tougher and the government has been preparing.”

Less reliance on demand from the US and rising external demand from BRICS nations could alter the global trade landscape.

Mainland Stock Markets Hit Fresh 2025 Highs

On Monday, September 1, Mainland China’s CSI 300 and the Shanghai Composite Index gained 0.60% and 0.46%, respectively, striking new year-to-date highs. Notably, the CSI 300 hit the highest level since March 2022, while the Shanghai Composite neared a 10-year high.

Despite YTD gains of 14.96% and 15.63%, the two indexes remain well below all-time highs, suggesting room for further upside. Optimism over Beijing’s 5% GDP growth target, bolstered by Beijing’s stimulus measures, continues to fuel demand for Mainland-listed stocks.

Both indexes have outperformed the Nasdaq Composite Index (YTD: 11.11%) but trail the Hang Seng Index (27.7%).

Trade developments and Beijing’s next round of policy support could be critical for market momentum.

Renewed US-China trade tensions, disagreements across BRICS member states, and the absence of fresh stimulus could derail the bullish sentiment.

The Road Ahead: Services Sector Activity, Trade Talks, and Stimulus

US-China trade developments and Beijing’s stimulus drive will set the tone for global markets in the weeks ahead.

However, crucial economic indicators will also affect risk appetite. On Wednesday, September 3, the RatingDog China General Services PMI will face scrutiny. Economists forecast the Services PMI to slip from 52.6 in July to 52.5 in August.

A higher PMI reading would indicate that Beijing’s policy efforts to boost demand for services have gained traction. An improving manufacturing sector and continued transition to a consumption-led economy would lift sentiment.

Conversely, a sharply lower PMI print could indicate weakening private consumption and challenge Beijing’s 5% GDP growth target. Under this scenario, the Chinese government may deliver further policy support to bolster the increasingly important services sector.

Track our real-time updates on China trade policy and equity market trends, and consult our economic calendar.