China Stocks Rally Despite Soft Consumption Data and Rising Trade Tensions

Weak Consumption Data Undermines Optimism Passenger trips reportedly increased 5.4% year-on-year between October 1 and 5, down from a 7.9% jump during May’s Labor Day holiday. According to CN Wire, a Julius Baer research note stated that the latest data from China’s Golden Week holiday suggested continuing consumption weakness. The research paper reportedly stated:

“Although domestic flight prices are about 10% pricier than last year, that is likely due to Beijing’s campaign against industry price wars rather than strong demand, it says. E-commerce sales of energy-efficient home appliances, smart refrigerators, and smart household items are the exception, it notes. Any social-welfare reforms announced at the Fourth Plenary Session, scheduled for later this month, could help boost the spending power of the average Chinese consumer.”

Citibank analysts appeared to share a similar view on the Golden Week holiday, reportedly stating:

“Chinese consumers continue to spend rationally during the holidays.”

Labor Market and Consumption Pressures Persist Analysts’ views on holiday spending trends will likely draw Beijing’s attention. US tariffs, rising input costs, and falling selling prices are squeezing margins, forcing firms to cut staffing levels or lower wages. The deteriorating labor market has impacted private consumption and potentially the broader economy.

For context, China’s unemployment rate rose from 5.2% in July to 5.3% in August, Youth unemployment rose to 18.6% (up from 17.8% in July and 14.5% in June). Rising unemployment has weighed on consumer sentiment and spending, limiting the effectiveness of policy measures aimed at stimulating consumption.

GDP Outlook Strengthens Despite Near-Term Challenges Despite weak sentiment toward the Golden Week holiday, economists continue to raise GDP projections for 2025. The World Bank projected GDP growth of 4.8%, up from April’s 4.0%, while expecting the economy to expand by 4.2% in 2026. The World Bank attributed the slowdown in 2026 to weaker external demand and fewer fiscal stimulus measures.

The outlook for 2026 contrasts with expectations of Beijing setting a 4.5% to 5% GDP growth target for the year.

CN Wire reported:

“China will likely set a GDP growth target of 4.5%-5.0% for the next five years at the Fourth Plenum scheduled for later this month, UBS economist Ning Zhang says in a research note. Given the persistent deflationary pressure, any explicit emphasis on nominal GDP growth or an introduction of a binding inflation target for the next five years would be a positive surprise for the market, Zhang says.”

While technological advances and industrial upgrades are likely to be focal points, Zhang highlights consumption as a key stimulus focus, stating:

“The new five-year plan will likely place a stronger emphasis on boosting consumption, with potential measures including increasing fiscal spending to improve the social safety net.”

Trade Tensions Build Ahead of APEC Summit Given the assessment of holiday spending and China’s economic outlook, traders could place more significance on trade developments.

US-China trade tensions intensified further during the Golden Week holiday as markets look to the APEC Summit on October 31—November 1.

This week, news broke that US lawmakers are calling for a broader ban on chip-making tool sales to China. China has reduced its reliance on US chips, developing its own alternatives. The prohibition on chip-making tools could be an effort to slow China’s move toward self-reliance and prevent the flood of cheaper Chinese-manufactured chips in the global market.

Beijing sent its own pre-APEC Summit message, reportedly banning the export of technologies linked to rare earth mining, refining, metal smelting, magnet manufacturing, and recycling. According to MKTNews.com:

“The rules, effective December 1, require foreign firms and individuals to obtain a dual-use items export license before shipment.”

Rare earth minerals and semiconductor-related export restrictions will likely be talking points at the APEC Summit. US President Trump and China’s President Xi are set to meet at the Summit, potentially reaching a trade deal.

The outcome of the APEC Summit could materially shift sentiment, particularly if the US drops tariffs on Chinese shipments.

Mainland Equity Markets Get Post-Holiday Boost Despite weak consumption data, investors remained optimistic about hopes for policy stimulus. Mainland equity markets reopened on Thursday, October 9, with market sentiment firmly intact.

The CSI 300 rallied 1.17% in morning trading, while the Shanghai Composite Index advanced 0.75%. Notably, the CSI 300 rose to its highest level since January 2022, while the Shanghai Composite Index was at a new decade high.

Crucially, both indices climbed to new 2025 highs, underpinning the market rally. Year-to-date, the CSI 300 and the Shanghai Composite Index have gained 19.53% and 16.80%, respectively. For context, the Hang Seng Index has soared 33.65% in 2025.

Despite the new 2025 highs, downside risks remain. Sentiment could sour if President Trump and President Xi do not reach an agreement. Stalled talks and escalating US-China trade tensions could weigh on risk sentiment. The absence of further policy support from Beijing may also affect risk assets if incoming economic data signal any further loss of momentum.

However, a trade deal and meaningful policy measures could signal a bullish fourth quarter.