cross-posted from: https://mander.xyz/post/55642193

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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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In recent months, the year-on-year growth rate of Chinese export volumes, boosted by rising AI investment, has been running at close to 15 per cent. Meanwhile, the growth rate of global import volumes is less than 5 per cent. As long as Chinese exports are growing more quickly than the world’s imports, China’s global market share is rising. And that has been true without interruption since early 2023.

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Meanwhile, the misery of Chinese households is illustrated by their persistent reluctance to spend money. The National Bureau of Statistics of China (NBS) has published its quarterly survey of household income and consumption, and the data shows that the savings rate of urban households is now running close to 40 per cent. Pre-pandemic, that rate was closer to 33 per cent, already extraordinarily high.

The flipside of this is very weak retail sales growth, which was just 0.7 per cent during the first six months of 2026. For comparison, the same figure for the US was over 4 per cent.

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It is tempting to characterize China’s manufacturing strategy, therefore, as driven at least in part by the desire to enhance its global geopolitical leverage.

Seeing things this way helps one understand why discussions about rebalancing the economy towards the consumer never really get off the ground.

It’s true that plenty of lip service is paid to the promise of rebalancing, and many prominent Chinese economists have argued articulately in favour of such a change in economic policy.

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[However], Beijing’s efforts to support Chinese households seem lukewarm at best. Even the ‘15th Five Year Plan for Expanding Consumption’, approved by the State Council last week, seems to be as much about boosting supply as boosting demand, prioritizing new infrastructure for the supply of services such as elderly care, childcare, culture and tourism. Targets to increase retail sales are modest.

So, ‘structural divergence’ ends up looking more like a feature than a bug of Chinese economic policy. Yet it is causing an increasingly serious problem: weak growth, as seen in the publication of weak GDP data for the April-June quarter.

For now, China is choosing the pursuit of geopolitical heft over household welfare. The authorities in Beijing will be hoping that this is a sustainable state of affairs.

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