OPEN LETTER: Chinese consumption collapses — the economy that can no longer lie to itself

Introduction: To the Chinese economy, with a clarity Beijing would rather avoid

The figures from May 2026

I am writing to you with numbers Beijing would have preferred never to publish. May 2026: Chinese retail sales contracted by 0.6% — the first decline since November 2022. This is not a statistical error. It is not a technical correction. It is a signal that the Chinese economy, despite every attempt at stimulus, every optimistic declaration and five-year plan, is facing a domestic demand crisis that official rhetoric can no longer mask.

You have spent years promising a "pivot toward domestic consumption" to replace the dependence on exports. The Xi Jinping administration has repeated this promise in every planning document, in every address to the National People's Congress. The Chinese consumer was supposed to become the engine of balanced, sustainable growth. The figures from May 2026 show that promise remains unfulfilled.

The 618 festival as a mirror

The 618 shopping festival of June 2026 — China's equivalent of Black Friday, one of the largest commercial events in the world — posted growth of just +4% according to Syntun data reported by CNBC. The previous year, growth had reached +15.2%. That is a collapse of more than three-quarters of the momentum. The Chinese consumer is not buying. The Chinese consumer is saving. The Chinese consumer is afraid.

That fear is not irrational. It reflects an accumulation of negative signals: the unresolved property crisis, persistently high youth unemployment, stagnating income prospects, and a pervasive uncertainty about the economic future. When households watch the value of their real-estate wealth decline for a fourth consecutive month across 70 major cities, they tighten their belts. That is basic economic rationality.

Real estate — the wound that will not heal

Four consecutive months of price declines

Property prices across China's 70 major cities fell for a fourth consecutive month, according to Bloomberg. That statistic must be read in context: in China, real estate accounts for an extraordinarily high share of household wealth — some estimates suggest 70% of Chinese household assets are held in property. When those prices fall, household net worth erodes, and with it the propensity to spend.

The real-estate crisis did not begin in 2026. It started with Evergrande's difficulties in 2021. But rather than resolving, it has become entrenched. Government attempts to stabilize the sector — easing regulations, supporting distressed developers, cutting mortgage rates — have failed to restore confidence. China's property market suffers from a structural oversupply in many secondary cities that piecemeal support measures cannot absorb.

Land sales — a local revenue stream running dry

Land sales by local governments dropped 36% in May 2026, according to Bloomberg. That figure may appear technical, but its practical consequences are considerable. Chinese local governments are structurally dependent on land sales to fund their expenditures — public services, infrastructure investment, social assistance.

A 36% collapse in land revenues paralyzes local spending. It creates budgetary pressure on local governments that had already accumulated significant debt. And it chokes investment in regions that relied on land revenues to fund their development. This is a self-reinforcing negative spiral: fewer land sales, lower local revenues, less investment, weaker local growth, less consumer confidence.

Investment in retreat — corporate confidence absent

-4.1% investment from January to May 2026

Investment in China fell 4.1% year-over-year between January and May 2026. That figure includes both private and public enterprise investment. A contraction in investment is particularly alarming because it signals that businesses do not trust future demand — they are not investing in production capacity they do not see a need for.

That lack of confidence is rational in the current context. Chinese private enterprises have endured a decade of regulatory campaigns — technology, education, real estate, video games — that sent the message that the government could arbitrarily reshape any sector at will. This regulatory unpredictability is a structural deterrent to private investment that declarations of good intent cannot undo.

The 2026 growth target — the lowest since 1991

The official GDP growth target for 2026 is 4.5 to 5% — which Bloomberg identifies as the lowest level since 1991. For an economy accustomed to double-digit growth rates, one that long presented 6–7% growth as a minimum necessary for social stability, this downward revision carries symbolic weight.

Reaching even this revised target is not guaranteed in the current environment. US tariff pressure, the property crisis, declining domestic consumption, retreating investment — these simultaneous headwinds create a difficult economic landscape. Beijing has monetary and fiscal stimulus tools, but their short-term effectiveness is constrained by the structural rigidities of China's economic model.

Trade tensions — Trump and Section 301 tariffs

The US-China trade war — a structural background factor

Section 301 tariffs imposed by the US administration have added pressure to Chinese exports. These tariffs, initiated under the first Trump administration and maintained and reinforced under Biden and the second Trump administration, target strategic sectors of the Chinese economy — electronics, steel, aluminum, electric vehicles.

The US-China trade war is a long-term structural factor that affects not only export flows but also foreign investor confidence. Multinational companies relocating production chains out of China — for reasons of geopolitical risk or to avoid US tariffs — reduce the foreign direct investment that had contributed to growth and technology transfer.

The FDI collapse — down 28.2% in 2024

FDI into China had dropped 28.2% in 2024 — a figure cited in the context of the 15-point plan. That dramatic decline reflects the growing wariness of multinational companies in the face of several converging risks: Chinese intelligence laws that can compel data disclosure, documented industrial espionage, geopolitical risks tied to Taiwan tensions, and uncertainty about future market access.

That wariness will not disappear with declarations of good intent, however detailed. It is built on years of negative experiences and Chinese policy decisions. Rebuilding foreign investor confidence is a long and fragile process that any new regulatory campaign or arbitrary government decision can instantly derail.

Alibaba, BYD, Baidu — on the Pentagon blacklist

Flagship companies in the American crosshairs

Among the companies most emblematic of China's economic success, Alibaba, BYD and Baidu remain on the US Pentagon's blacklist. This situation creates a particularly revealing contradiction: companies Beijing presents as global technology champions are identified by the US government as having ties to the Chinese military.

Being placed on the Pentagon's blacklist creates restrictions on US investments and partnerships for these companies. It narrows their access to American markets and technologies. And it signals to other global businesses that working with these players carries regulatory compliance risks in the United States.

The dilemma for multinational companies

For multinational companies operating in China, the situation is uncomfortable. On one side, the Chinese market remains vast and potentially lucrative. On the other, legal risks — tied to Chinese intelligence laws — and reputational risks — linked to geopolitical tensions — are driving a de-risking impulse that translates into reduced investment and supply chain diversification away from China.

This de-risking movement is real and documented. It does not mean total decoupling — Chinese and Western economies remain deeply intertwined. But it does mean a progressive reduction of dependence that, over time, affects Chinese growth by curtailing the flows of investment, technology, and expertise that had powered its development since the 1980s.

The economy and geopolitics — two interconnected spirals

The temptation of nationalism as a substitute for prosperity

A struggling economy can push an authoritarian government toward escalating nationalism as a distraction. That dynamic is historically documented. The worsening tensions in the South China Sea, the provocations around Taiwan, the investments in an increasingly capable military — all of these can be partially understood as a response to domestic economic difficulties.

If Chinese citizens are suffering economically, they are less likely to challenge the regime if they believe China is encircled by enemies seeking to weaken it. Nationalism and the rhetoric of Western encirclement are powerful narratives that redirect domestic discontent. Beijing deploys them, even though that deployment creates real geopolitical risks for the entire world.

The vicious cycle of sanctions and defense

Economic difficulties could also push China to accelerate its technological self-sufficiency — a trend already visible in its massive investments in semiconductors, AI, and energy. This race toward self-sufficiency feeds a technological and industrial competition with the West that generates additional commercial and geopolitical pressures.

This is a potential vicious cycle: economic difficulties, nationalist pressure, geopolitical tensions, new sanctions and restrictions, worsening economic difficulties. Western economists and strategists must integrate this interconnection into their analyses — China's economic fate and global geopolitical stability are linked in ways that the disciplinary separation between economics and geopolitics cannot capture.

Chinese companies abroad — an expansion that contrasts with domestic difficulties

BYD and the conquest of global markets

While domestic Chinese consumption collapses, certain Chinese companies are achieving remarkable international expansion. BYD, the electric vehicle manufacturer, became the world's top-selling EV maker in 2023, surpassing Tesla by volume. Its presence is growing across Europe, Southeast Asia, and Latin America — markets that do not impose the same restrictions as the United States.

BYD's international expansion illustrates a compensation strategy: what the company cannot sell as easily on a struggling domestic market, it sells abroad. But it also creates tensions with Western governments concerned about state subsidies that allow BYD to offer prices that private manufacturers could not sustain. The European Union has opened anti-subsidy investigations that have resulted in additional import duties.

Internationalization as a structural workaround

The strategy of Chinese companies expanding internationally to offset domestic market weaknesses is a structural feature of the Chinese economy in 2026. It extends well beyond BYD — to telecom equipment, digital platforms, and renewable energy production equipment. China is exporting its industrial overcapacities to markets that have not yet developed the resources or the political will to restrict them.

This strategy creates growing trade friction with the West, which sees these subsidized exports as unfair competition threatening its own industries. US tariffs on Chinese electric vehicles (100%), European Union investigations, restrictions placed on Huawei in 5G networks — all of these measures reflect a growing awareness that China's commercial expansion abroad cannot be separated from its strategic and security dimensions.

The global economy and the consequences of China's slowdown

Contagion effects on the global economy

China's economic slowdown does not stay within its borders. China is the top trading partner of more than 120 countries worldwide. When Chinese consumption retreats, commodity exporters — Australia, Brazil, South Africa — see their export revenues shrink. When Chinese investment slows, countries counting on the Belt and Road Initiative for infrastructure development see financing flows dry up.

These contagion effects are asymmetric depending on the country. Developed Western economies, which have reduced their China dependence in recent years, are less exposed than emerging economies that bet heavily on the partnership with Beijing. The Chinese slowdown of 2026 could therefore worsen economic pressures in several developing regions, with potential geopolitical consequences — instability, migration, and a reassessment of partnerships with Beijing.

Europe and China — a relationship under economic strain

The European Union is both a major trade partner of China and an economy increasingly concerned about dependency risks. China's 2026 slowdown has direct effects on exposed European sectors — the automotive industry (exports to China represent a significant share for manufacturers such as Volkswagen, BMW, and Mercedes), luxury goods, and machine tools.

At the same time, the additional import duties imposed by the EU on Chinese electric vehicles are creating trade tensions that complicate the management of this economic relationship. Europe finds itself in an uncomfortable position: it needs the Chinese market for its companies, it fears unfair competition from state-subsidized Chinese firms, and it must balance its economic interests against its strategic and values-based concerns. This triangle of tensions has no simple resolution.

Conclusion: An economy that must look honestly in the mirror

The growth model has structural limits

I close this letter with a conviction: China's economy does not have a cyclical problem — it has a structural problem. The dependence on exports, the property bubble, domestic under-consumption, private investor mistrust, the local government financing model — these are structural features of China's growth model that cannot be corrected by five-year plans or declarations of good intent.

The 4.5 to 5% growth target for 2026 — the lowest since 1991 — is not just a number. It is an implicit acknowledgment that the growth model of the past forty years has run its course. The transition to a new model is possible, but it is painful, prolonged, and politically risky for a regime whose legitimacy rests on the promise of prosperity.

What the West should understand

What the West should take from the May 2026 figures is that China is economically vulnerable — perhaps more so than its military displays of force and its rhetoric of power suggest. That vulnerability can be a lever for conditional economic engagement, for structural reforms, for fair commercial competition. But it can also be a source of danger if a regime facing internal difficulty chooses external adventurism as an outlet. Understanding that dialectic is the precondition for a Western policy toward China that is actually equal to the stakes.

Signed Maxime Marquette, columnist

Columnist's transparency box

Data and sources

This open letter draws on data published between June 21 and June 25, 2026: CNBC, Bloomberg, The Guardian, India Today, SCMP, Straits Times. The figures — -0.6% retail sales, +4% 618 festival, -4.1% investment, -36% land sales, -28.2% FDI 2024, 4.5–5% GDP target — come directly from those identified sources.

The "open letter" format is a rhetorical convention that personalizes the address — I am not claiming to have sent this text to a real recipient. It is a literary genre that allows for a direct interpellation of a complex subject. The opinions expressed in italics are my own. The quantitative facts are those of the sources cited.

Editorial positioning

I am in favor of a prosperous, stable China integrated into the international order — not because I support its current political regime, but because poverty and instability in China would have catastrophic global consequences. My critique of China's economic model and its leadership is formulated from that perspective.

I acknowledge that my sources are all Western or non-Chinese Asian media. I do not have access to Chinese economic data unfiltered by the authorities. Official Chinese statistics are subject to ongoing debate about their reliability — I use them as trend indicators, not as absolute measurements.

Sources

Primary sources

CNBC — 618 festival, +4% only, consumer spending slowdown, Syntun data — June 23, 2026

Bloomberg — 6 charts explaining China's economic slowdown — June 25, 2026

Secondary sources

The Guardian — The long shadow of the Trump-Iran deal on the global economy — June 21, 2026

India Today — Chinese strategic context, regional tensions — June 24, 2026

South China Morning Post — China tensions, South China Sea context — June 23, 2026

Straits Times — Strategic context, Fujian transit — June 23, 2026