China’s Domestic Demand Slump Threatens Growth Model

China’s domestic demand, now at a breaking point, is putting the sustainability of its new growth strategy into question.

Roots of Domestic Demand Weakness

The PMI for July’s services sector missed expectations, signaling a clear decline in household spending and consumer confidence. While export orders remain robust, the internal market slowdown is intensifying pressure for new government stimulus packages.

Shock in the Services PMI

■PMI fell to 49.2, a drop of 0.5 points, marking the lowest level in three months.

■New business orders declined 12% over the past 6 months.

■Luxury and services spending slipped 8%.

Export Demand as a Protective Shield

Export orders have continued to rise for a third consecutive month, buoyed by global trade network activity. This external demand partially sustains Chinese firms’ operational capacity, while limiting employment gains in the services sector.

Historic Low in Business Confidence Index

The business confidence index, at its lowest since February 2020, recorded 35.4 points—a historic trough reflecting the combined weakness of both manufacturing and services.

Takeaways for Investors

■Short term: Anticipation of aggressive fiscal stimulus could spark volatility in FX rates and equity markets.

■Mid term: If domestic demand does not rebound, sectors tied to real estate and consumption face a risk of zero growth over the longer horizon.

■Long term: The durability of export demand remains a pivotal factor for reviving a production‑centric growth model.

Murat Yıldız – Real Estate Development Investment and Appraisal Specialist: The domestic demand shock in China may trigger a re‑pricing of asset values, especially in housing and services. Investors should continue to leverage the still‑strong export base while tightening risk management on consumption‑driven projects.