China Outlook Weakens as Housing Slump Deepens and Demand Falters

China’s economy faced intense scrutiny on Friday, November 14, amid waning domestic consumption and a slump in external demand. October’s Trump-Xi one-year trade truce failed to shift sentiment. The trade truce reduced US tariffs on Chinese goods to 47%, down marginally from 57%.

Weakening external demand has led to margin squeezes, forcing firms to cut staffing levels. Rising unemployment has eroded domestic demand, keeping deflationary pressures intact.

Housing market woes have added to the narrative, another blow for Beijing, which is looking to boost household spending with stimulus.

Housing Prices Extend Decline

Chinese housing market data showed no signs of recovery in October, potentially weighing on consumer sentiment. The House Price Index fell 2.2% year-on-year in October, matching September’s drop. Economists expected house prices to decline 2%.

According to CN Wire:
“Average prices fell 2.6% in October versus a 2.7% drop in September, with year-on-year declines recorded in 61 of 70 cities, the same as in September.”

However, month-on-month price trends signaled further deterioration in housing market conditions. CN Wire reported:

“China’s average home prices fell 0.45% month-on-month in October, slightly worse than September’s 0.41% decline, with prices dropping in 64 of 70 cities compared with 63 in the previous month.”

October’s drop in house prices will likely weigh on household wealth and spending.

The Hang Seng Mainland Properties Index briefly dropped from 1,369 to a low of 1,365 before climbing to a high of 1,387. October’s price trends suggested the need for further policy support, lifting sentiment. At the time of writing, the HSMPI was up 0.19% to 1,385.

Chinese Economic Indicators Send Mixed Signals

The larger-than-expected YoY drop in house prices coincided with falling unemployment but weakening retail sales, challenging Beijing’s 5% GDP growth target.

Unemployment unexpectedly fell from 5.2% in September to 5.1% in October. A stabilization in the labor market could boost consumer sentiment, potentially reviving domestic demand. While the unemployment rate fell, private sector PMIs pointed to job cuts, highlighting uneven labor market conditions.

Meanwhile, retail sales increased 2.9% YoY in October, down from 3% in September. Crucially, retail sales have trended sharply lower since May’s 6.4% YoY rise, underscoring the effects of US tariffs on the labor market, sentiment, and household spending.

CN Wire commented on weakening domestic consumption ahead of today’s data, stating:

“China is facing its longest slowdown in consumption growth since its post-COVID rebound over four years ago. Retail sales are expected to rise 2.8% year-on-year in October, according to the median economic forecast, marking the fifth consecutive month of deceleration—the weakest gain in over a year. Some of this weakness is technical, due to a high comparison base from last year and one fewer working day in October 2025.”

Other Chinese data signaled a loss of momentum:

• Industrial production rose 4.9% YoY in October, down sharply from 6.5% in September.
• Fixed asset investment fell 1.7% year-to-date in October, YoY, compared with a 0.5% drop in September.

These figures aligned with Citigroup economists’ expectations of weaker numbers due to a high base, calendar effects, and weaker momentum.

Market Reaction to China’s Economic Indicators

The Hang Seng Index and the AUD/USD pair reacted to the mixed data.

On Friday, November 14, the Hang Seng Index was down 0.85% to 26,843. The Index dropped to a low of 26,781 after the data release before briefly climbing to a session high of 26,844.

In the forex markets, the Aussie dollar got a boost despite softer retail sales, supported by the unexpected drop in unemployment. AUD/USD rallied from $0.65369 to a session high of $0.65491 before easing back to $0.65484, up 0.32% at the time of writing.

The mixed reports fueled hopes of further stimulus from Beijing to bolster the housing market and boost consumption, lifting AUD/USD and the Hang Seng Index from session lows.

Looking Ahead

Markets now face a pivotal test. The US-China trade truce will remain a market focal point as tensions simmer. An escalation in tensions could derail the Hang Seng Index and the Mainland China 2025 equity market rally.

However, further policy pledges from Beijing could overshadow the mixed data and concerns about US-China trade relations, potentially boosting demand for risk assets.

Track the latest developments and policy signals here. Given the latest data, a cautious approach is essential.