The world is being driven by conflicts that increasingly resemble the disastrous 1930s.
June 24 (King World News) – Gerald Celente: PUBLISHER’S NOTE: Beijing continues to believe that an industrial machine turning out “new productive forces” such as AI equipment, biotech machines, EVs, and solar panels will bring the domestic economy back to life.
The export economy will face growth limits. Countries, especially the EU, are capping Chinese exports in various categories to keep domestic producers in business.
China’s export economy will continue to grow but not enough to spark a thriving domestic counterpart.
As we have long forecast, their consumer economy will not revive until the crisis in home values is resolved, but that is unlikely since there are some 90 million empty or unfinished housing units.
And as we have detailed, Beijing made this bad situation much worse when it launched the COVID War on its Chinese Lunar New Year, “The Year of the Rat,” in January 2020 and then locked down the nation with three years of zero-COVID policy that destroyed the lives and livelihoods of hundreds of millions of its population.
Making a bad situation worse, with inflation rising and the world economy reeling in the wake of the Iran War, China’s export revenues will be blunted, joblessness will rise and the domestic economy will weaken further.
Chinese President Xi Jinping is known to believe in the traditional Communist idea that wealth comes from industrial production. He also reportedly believes that government stimulus for a consumer economy is decadent and “Western,” meaning anathema.
In addition, some Chinese officials have called the national debt a “crisis,” making it difficult to discuss the massive investment that would be needed to clear unfinished homes off the market or otherwise revive home values.
But an upside for China, as Gerald Celente has noted, is that the business of China is business while the business of America is war. And what may well ignite a domestic economic upside is when China takes the lead in the new world of AI.
Here are the latest round Chinese economic ups and downs:
CHINA’S EXPORTS SURGE AS DOMESTIC ECONOMY SAGS FURTHER
In May, China’s overall exports rose 19.4 percent from May 2025, beating April’s 14.1-percent increase and economists’ forecasts of a 15-percent bump.
Those exports rose in value more than volume. In April, the value of the country’s exports doubled to $31.1 billion, year-on-year, while the amount of goods shipped edged up just 3.8 percent.
China is making the most of its role in supplying key components in the worldwide booms in AI data center construction and conversion to clean energy, as we reported in “How China Dominates the Global Tech Economy” (16 Jun 2026).
“China is now the center of a vast industrial manufacturing network encompassing Northeast and Southeast Asia,” the World Socialist Web Site reported.
However, China’s export economy is the life support system for a domestic economy that has been languishing for more than five years.
Retail sales fell 0.6 percent in May, as we note in “Chinese Consumer Spending Declines in May” in this issue, and private investment was off 7.1 percent this year through May. Investment in manufacturing facilities decreased last month for the first time in six years.
Car dealers sold 16 percent fewer cars in May than they did in May 2025, the sixth consecutive month of double-digit declines since government incentives ended last year…
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Although banks made more loans in May, the number was still 11 percent below the number issued a year earlier.
“Weak underlying credit showed little sign of rebounding, despite efforts by the central bank” to stimulate demand for loans, according to a Bloomberg report published earlier this month.
China’s domestic doldrums are rooted in the crash of real estate values, particularly homes, which took place in the fall of 2021. Real estate was booming and builders were borrowing at a breakneck pace to put up homes fast enough to meet demand.
Alarmed that developers were so deep in debt, Beijing cut off their credit. Work abruptly stopped on millions of partially completed apartments, on which many buyers had already begun to make payments.
With the housing market flooded with half-built homes, values of existing homes have plummeted by nearly a quarter since their 2021 peak, with home sales down 50 percent over the same period.
Most Chinese households hold their savings as equity in their homes. As those “savings” began to shrink, families began saving money to make up their loss.
That has sunk consumer spending, and the Chinese government has made no meaningful effort to restore the property market, raise home values, and spur Chinese shoppers to spend discretionary money again.
Now the domestic economy’s lifeline to China’s export machine may be in danger. Many countries being swamped by an endless wave of Chinese imports are erecting tariffs and other trade barriers to protect their own domestic producers.
Following the U.S., Europe – which accepts 20 percent of China’s exports and accounts for 31 percent of its trade surplus – is becoming increasingly mulish.
“The external environment has become increasingly complex and volatile, and the imbalance of strong supply and weak demand remains pronounced,” the National Bureau of Statistics said in a statement. “Some enterprises face significant operational pressures.”
Some toy factories that were operating on already-thin margins have closed as the Iran War hiked the price of plastics. That has sent thousands of workers into the streets to protest their loss of jobs.
In the past, Chinese leaders said that an annual economic growth rate of 8 percent was needed to maintain “social stability.” This year’s growth target is “between 4.5 and 5 percent,” the lowest in decades.
“At no time in modern history has a large country gone all in on investment in high-end technology while also navigating a slowing economy,” The Economist magazine noted in a recent issue.
“Although it would not take much to choke the new growth engine,” the magazine added, Chinese president “Xi is nevertheless betting that the new model of growth [through high-tech exports] kicks in faster than the old one – driven by land sales and construction… it is a high-stakes gamble.”
That is a key reason why China is working hard to block Europe’s proposed Industrial Accelerator Act. The law would bar China from competing for some government purchase contracts, restrict Chinese takeovers of European companies, and block some Chinese tech companies from participating in telecom networks.
The European Union cannot afford to fight a trade war with China,” the Beijing-controlled Global Times newspaper warned.
China has spent decades trying to maintain its government-controlled economy while integrating into a global system defined largely by capitalist principles, the WSWS noted, “but that [system] has been shattered,” it said.
Instead, “global capitalism is rapidly moving not into a multipolar world but one driven by a series of conflicts that increasingly resemble those of the disastrous 1930s,” the website warned.
CHINESE CONSUMER SPENDING DECLINES IN MAY
In May, for the first time since December 2022, consumer spending in China declined on an annual basis. Retail spending slipped 0.6 percent last month compared to May 2025.
It was the first year-on-year contraction since China ended its rolling series of lockdowns in response to the COVID virus in 2022.
Investment in fixed assets also declined, dropping 4.1 percent from a year earlier. The gauge includes residential real estate, which is still plagued by an unresolved, four-year-old crisis. The measure showed a decline of 1.6 percent this year through April, but more than doubled in May.
The housing crisis has slashed home values by a third, destroying much of homeowners’ assets and prompting them to save money to make up their lost equity. Compulsive saving is starving the consumer economy.
The figures also showed that China’s economy becoming even more lopsided. As the domestic economy has stagnated and struggled with deflation, the country’s export industries have boomed.
Export volumes grew 4.5 percent in May, year on year, and 20 percent in dollar terms, reflecting a sharp increase in shipments of advanced technology products, especially related to hikes in demand for AI-related goods and clean energy technologies.
China also has flooded the world with goods not selling at home, electric cars in particular. That has earned it huge trade surpluses but also has prompted its increasingly reluctant customers abroad to raise tariffs and other trade barriers to protect domestic industries.
The weak consumer demand is reflected in the contrast in May between inflation and spending. Wholesale prices shot up 3.9 percent in May from a year previous, while the consumer price index rose 1.2 percent. That suggests that manufacturers are unwilling to pass their higher costs to consumers who already lack interest in spending.
“May’s data reinforced the divergence between resilient external demand and weakening domestic activity, with strong exports increasingly at odds with weak inflation and soft activity indicators,” senior economist Sheana Yue at Oxford Economics wrote in a note to clients.
Despite May’s poor outcome, China remains on track to reach its 2026 growth target of between 4.5 and 5 percent, its least ambitious target for economic expansion in decades.
CHINA’S NEW EMPHASIS ON DOMESTIC ECONOMY IS NOT WORKING
In a December meeting on economic policy, Chinese president Xi Jinping told government officials to “coordinate efforts to promote consumption and expand investment.”
So far, nothing has changed in either area.
In May, retail sales declined 0.6 percent, year on year, their first contraction since December 2022. Investment fell 4.1 percent.
The data “shows an economy that is struggling to shake off a sense of domestic malaise despite Beijing’s desire to galvanize demand,” the Financial Times noted.
“We are seeing a renewed slowdown in the economy,” Frederic Neumann, HSBC bank’s chief Asia economist, said in comments quoted by the FT. “Some of the optimism at the beginning of the year is beginning to fade quite quickly. The question is, have we hit a wall yet?”
China is stranded between growth models.
From the 1980s through the first decade of this century, the country’s economy thrived on exporting cheap commodity goods and building public works. That focus has continued but is reaching its end date.
“We are at a juncture where the value we get out of further infrastructure investment begins to see diminishing returns,” Lynn Song, ING bank’s chief China economist, said to the FT.
In this century’s teen years, China’s suddenly booming middle class wanted to own homes. Property developers built millions of flats, creating literal cities of apartment blocks and burrowing deeper into debt to keep up with demand.
Alarmed by that rising debt, in September 2021 the government slashed builders’ access to credit. As a result, work screeched to a halt on millions of apartments that are still unfinished.
Home values crashed, falling around 25 percent to date, and homeowners became dedicated savers to restore the value they lost in the property debacle. The consumer economy became comatose.
When the property industry’s turn as a growth engine ended, Xi expanded the country’s reliance on what he called “new productive forces.”
Instead of exporting tires and toys, the country feverishly expanded its expertise in cutting-edge technologies and ramped up high-value exports in AI, biotech, clean energy, computer chips, and quantum sciences, among other areas.
Now that wave of dazzling exports has inflamed tensions with customer countries, which are erecting tariffs and other trade barriers to protect their domestic producers.
The economy modeled on new productive forces is reaching its limit.
The lingering crash in home values has drained consumers of their confidence in the country’s economy. However, “the weakness in consumption is more structural,” analyst Logan Wright at data service Rhodium told the FT.
“There has never really been a policy of active demand management from the consumption side,” Neumann noted. “China is not geared up for that.”
At the same time, “it is hard to see how growth is sustainable over time” if the country does not shift from investment-led growth to consumption-based expansion, he added.
Weaning China from the investment-led growth model will require fundamental shifts in not only leaders’ attitudes but also in the country’s culture, which has long valued thrift over spending.
Major industries also have learned over decades to depend on government-directed investment for their profitability, if not their survival.
“If you’re Chinese and you see your country progress over 40 years, you’re not going to say the model doesn’t work,” Neumann acknowledged. “It has worked. It is really hard psychologically to say this model no longer works.”
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