Low domestic consumption is hurting China’s economy

In June 2026, retail car sales in China decreased by 23%, compared to the same period last year, and during the first half of this year, sales declined by 20%, at a time when the “China Passenger Car Association” expects sales throughout the entire year to decrease by 14%.

The automobile sector, which is seen as a major indicator, is not the only area affected by the decline in consumption in the second most populous country in the world, as smartphone sales, another important indicator, decreased by 13% on an annual basis during the shopping festival, which lasted from May 26 to June 21, 2026.

Chinese consumers are slow to spend, and they can’t be blamed for that. The economy, at least as most people see it, is in bad shape, and getting worse.

But official figures tell a different story. According to what was announced by the National Bureau of Statistics in China, the gross domestic product grew by 4.3% in the first quarter of this year, and this number is almost certainly exaggerated.

Chinese exports are booming. The country has vast capabilities, technology companies, and highly automated manufacturers, but as British economist George Magnus points out, they “cannot replace good macroeconomic governance and well-established institutional technology ecosystems that spread the benefits throughout the economy.”

Despite the success of these sectors, the Chinese economy is going through a crisis. A report issued in December 2025 by Global Source Partners, which is based in New York City, indicated that the total unemployment rate in the country at that time was no less than 20%, and the official unemployment rate in urban areas announced by Beijing for the month of June was 5%, but this number is fictional.

The situation is not so good inside the country that the central government, for the first time since the 1990s, did not set a numerical target for creating job opportunities in urban areas within the five-year plan.

Another problem is “disguised unemployment.” As China’s manufacturing sector becomes highly automated — the country has “dark factories” where the lights are turned off because there are no humans on the assembly lines — people are forced into the “gig” economy.

The number of gig economy jobs currently stands at about 320 million, representing about 44% of the workforce. A 30-year-old young man told Reuters: “Those who used to take taxis are now forced to drive them themselves.”

As the gig economy reaches saturation, the unemployed are leaving the cities for the countryside, university graduates are now competing for shepherd jobs, and urban youth are “retiring” to farms.

China has built an economy focused on building industrial capacity and curbing consumer demand. For example, Beijing has kept interest rates on bank deposits artificially low, to support government loans for infrastructure projects that are not economically viable, and to encourage manufacturing. Low interest rates mean less money in the hands of consumers.

As a result, consumption contributes about 39% of China’s GDP, which is among the lowest in the world, and all indicators indicate that this percentage is declining.

Will things change? “The chance of structural reform in China under the current government is completely non-existent,” says Anne Stevenson-Yang, of the American company J Capital Research. About “The Hill”

• Chinese manufacturing has turned into a highly automated sector, creating “dark factories” in which the lights are turned off, because there are no humans on the assembly lines, and forcing people to engage in the “gig” economy.