China’s Economy Shows Cracks as Xi Prepares for Talks With Trump

As Xi Jinping prepares for a fresh round of talks with Donald Trump, China’s economy is sending mixed signals—strong on the surface, but increasingly fragile underneath.

China’s export machine continues to deliver impressive numbers, with the country recording a trade surplus exceeding one trillion dollars, the highest on record. Robust overseas demand and relentless manufacturing output have helped Beijing keep overall growth close to official targets, reinforcing China’s position as a global industrial powerhouse despite ongoing geopolitical tensions.

However, domestic economic indicators tell a more troubling story. Consumer demand remains sluggish, with retail sales rising by just over one per cent in November—the weakest pace in nearly two years. Industrial output has softened, private investment is slowing, and business sentiment remains cautious, raising concerns that export-driven growth is masking deeper structural weaknesses.

At the heart of the slowdown lies China’s prolonged property sector crisis. Once a pillar of household wealth and economic confidence, real estate continues to drag on consumption. Falling home prices, stalled housing projects, and mounting debt among developers have eroded consumer confidence, discouraging spending and amplifying financial stress.

President Xi himself has criticised what he described as reckless investment practices, signalling official unease over unsustainable growth models. While Beijing has repeatedly pledged to rebalance the economy away from exports and infrastructure spending towards domestic consumption, progress on that front has been limited.

Economists warn that large-scale stimulus measures could further inflate China’s already high debt levels, while deeper structural reforms—such as strengthening social welfare systems to boost household spending—remain politically and administratively complex.

The domestic slowdown comes at a sensitive moment for China’s foreign policy. As Beijing and Washington move toward renewed discussions on trade, tariffs, and technology restrictions, internal economic pressures could shape China’s negotiating posture.

While China retains leverage through its dominance of global supply chains and control over critical resources such as rare earth minerals, analysts caution that heavy reliance on exports leaves the economy vulnerable to shifts in global demand and potential trade disruptions.

For Xi Jinping, the challenge is balancing domestic economic repair with the need to project confidence abroad. How effectively China navigates this delicate equation may not only influence the outcome of talks with Trump, but also determine the longer-term trajectory of the world’s second-largest economy.