‘Structural divergence’ in China’s economy exposes a growing problem
China's economy is experiencing 'structural divergence,' where the manufacturing sector thrives while household spending remains weak. This trend reflects a deliberate government strategy to prioritize industrial growth and geopolitical leverage over domestic consumption.
Why it matters
Understanding China's economic strategy is critical for global markets and international trade relations.
Manufacturing is thriving while household spending is suffering. This seems to reflect a deliberate strategy by Beijing to maximize its geopolitical leverage. Growth suffers as a result.
China's policymakers can compete with the best when it comes to euphemism, and one new phrase worth taking note of is ' jiegou fenhua ' or 'structural divergence' - a term the People's Bank of China used in its July statement to describe what's going on in the Chinese economy.
What it means is that the economy is running at two different speeds. The manufacturing sector and exports are enjoying a stellar performance, while indicators of household spending and satisfaction remain in the doldrums. This is by no means a new phenomenon: Chinese households' gloom has deepened ever since the pandemic ended, while Chinese manufacturers have been accelerating their capture of global market share for almost the exact same length of time.
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