China’s late-year sputter: When the world’s second-largest engine starts running on fumes

Running on Fumes

China’s October data dump landed like a cold draft blowing through a room everyone was trying to convince themselves was still warm. For Asia markets gunning for a clean year-end glide, this is not the cocktail anyone ordered. What we got instead was a reminder that China’s growth engine—once the global market’s dependable V8—is still idling unevenly, coughing, and occasionally backfiring when traders need it to hum.

Investment was the first alarm bell. Fixed-asset investment didn’t just miss already-depressed expectations; it sank further into the mire at –1.7% YTD, its weakest since mid-pandemic 2020. Infrastructure—the old reliable—actually slipped into contraction at –0.1% YTD, a level that once would have triggered emergency Politburo meetings. Manufacturing capex, the one pillar that had held up for years, slowed to 2.7% as private-sector confidence evaporated like mist under a heat lamp. Even government investment—normally the “break glass” fallback—was barely above zero and looking ready to print a contraction. When Beijing’s own hand is barely lifting, you know the reluctance to deploy the fiscal bazooka is real.

There were pockets of life, but all in the sexy, future-facing corners—autos at 17.5%, rail-ships-air at 20.1%, semis and robotics still punching out double-digit gains. China can still build next-gen hardware at an industrial-revolution pace; it’s the old-world bricks, mortar, and private capex appetite that are vanishing.

Credit reinforced the malaise. New RMB loans fell outright in October—seasonal softness or not, the deeper story is demand: there isn’t any. Real rates are too high, animal spirits too low, and with anti-involution policies discouraging redundant investment, corporates have one hand on their cash and the other nowhere near a loan application.

And then comes property, the great Beijing headache that refuses to respond to aspirin. New home prices fell –0.45% MoM, used homes –0.66%, both at the steepest pace in a year. The cumulative damage is brutal: new prices down nearly 12% from the peak; secondary prices down over 20%. In 45 of 70 cities, resale prices are down 20–30%—real household balance-sheet pain that policymakers have yet to meaningfully address. Property investment at –14.7% remains the biggest drag on the macro machine, and without intervention the wealth effect from housing will continue bleeding out into consumption.

Retail, to its credit, at least avoided an outright stall. Sales slowed only slightly to 2.9% YoY, better than feared. Gold and jewellery were the star, up a scorching 37.6%—a sign not just of strong demand at record gold prices, but also of households hedging uncertainty the old-fashioned way. But the broader consumption story is losing steam as the trade-in stimulus fades. Appliances collapsed –14.6%, furniture and communications gear are rolling over, and the front-loaded boost from earlier incentives is now giving way to a payback period. Beijing will need a new consumer playbook for 2026; the current one is spent.

Industrial production—this year’s core stabiliser—slipped hard to 4.9% from 6.5%. Still healthy, but unmistakably cooling, and with the PMI already hinting at a downshift, the October print raises yellow flags. Autos, aviation, semis, robots: still strong. But the broader industrial cycle is decelerating, and as external demand starts to soften, China risks running out of engines just when domestic demand is rolling over.

Put all of this together and the macro picture into year-end looks like a dragon losing altitude. Not crashing—but gliding lower, wings flapping, waiting for the next thermal. The irony is that Beijing doesn’t need to hit the fiscal or monetary panic button to meet this year’s 5% growth target. The first three quarters already loaded the scoreboard. That lack of urgency explains the radio silence on stimulus. But the ambitions ahead—Li’s RMB 170tn GDP goal for 2030, Xi’s doubling target for 2035—require a marathon strategy with steady policy pacing, not random spurts of intervention.

So Beijing looks content to save its ammunition for 2026: a likely dose of monetary easing, plus selective fiscal support for households and strategic industries—autos, AI, robotics, semiconductors. The long game hasn’t changed; policymakers just don’t see the need to deploy the heavy stuff in Q4.

For Asia markets, though, this isn’t a great year-end setup. China isn’t collapsing, but it isn’t lifting either—and when one of the world’s biggest demand engines sputters into December.