I’m wary of the word “unsustainable” in the macro-market. It has an air of imminence. To use it is to suggest, accidentally or not, that catastrophe’s near at hand.

With that caveat, China’s economic strategy looks more unsustainable by the month. Activity data released on Monday underscored the point.

Retail sales growth was just 0.6% in July, the NBS said. That was nowhere near consensus and slower than June’s already moribund rate. July marked the fourth consecutive month during which retail sales were essentially flat.

As the figure above reminds you, these kind of prints would’ve been unimaginable pre-pandemic.

There were excuses. There always are. “Extreme weather” in some areas of the country played a part and the comp was distorted by last year’s stimulus measures, which included a trade-in program that offered subsidies to citizens who swapped old cars, appliances and consumer electronics for new models.

Still, the readout was disappointing, to put it politely. To the extent the Party’s even trying (and I think that’s debatable), government efforts to revive household demand in the face of falling property prices, entrenched disinflation (war distortions aside) and what still looks suspiciously like a balance sheet recession, are proving wholly ineffective.

Note that new yuan loans contracted for the second time in four months in July, according to latest credit growth (or “growth” in scare quotes) figures. As the chart below shows, Chinese were net repayers of debt last month, when new yuan loans were negative to the tune of CNY340 billion. In addition to being a record decline, it’s only the third decline on record.

The outstanding loan stock grew just 5.1% in July. The decline in that rate continues to amaze me. It was 12% this time five years ago.

Do note: Borrowing costs are hardly punitive. Indeed, they’ve come down this year, and while I won’t pretend to have analyzed this in any systematic way, simple math suggests the war-driven increase in local inflation (which, as a quick aside, faded meaningfully in July) pushed real rates lower in recent months, making tepid credit demand seem even more ominous.

This would be troubling enough on its own, but to grasp why some see a crisis in the making, you have to consider it in the context of China’s trade surplus, which is on track to exceed $1 trillion for a second consecutive year.

The surplus was $113 billion in July alone, wider than expected, even as it narrowed from the prior month.

As former US Trade Representative Michael Froman (“You are Abe Froman?” “That’s right, I’m Abe Froman.”) observed, while writing for Foreign Affairs, China’s surplus is “growing at three times the rate of global goods trade.”

You don’t need to be any sort of expert to understand why that’s a potential problem. Global demand, Froman emphasized, simply isn’t “rising fast enough to absorb Chinese exports at this pace, in key sectors or in aggregate.”

In other words, even if it were politically feasible for China to keep flooding the world with cheap goods, it’s not mathematically possible.

Consider electric vehicles. China has the wherewithal to build 25 million EVs and plug-in hybrids annually, but the domestic market for those vehicles isn’t even half that. A fairly aggressive forecast for global BEV and PHEV demand in 2026 is 25 million. So, even in a bull case for the market, China could theoretically meet the entire world’s demand for electric and partially-electric passenger vehicles this year by itself.

Here’s another wild statistic: Passenger car sales in China plunged more than 20% in July while vehicle exports rose almost 90%. As Bloomberg noted, “that means that 41% of cars produced in the country were sent abroad, compared with 21% a year ago.”

You can conjure similarly eye-popping stats for solar panels and any number of other goods ranging from low- to high-value. The fact that China refuses to give up its monopoly on the former even as it works to monopolize the latter is also problematic. As the same Foreign Affairs piece points out, there’s no historical precedent for a country “compet[ing] simultaneously” with developed economies for the production of high-value goods and “with the poorest nations [for] the manufacture of textiles, apparel and household baubles.”

Monday’s data out of Beijing also showed property investment fell nearly 20% during the first seven months of the year versus the same stretch in 2025. Overall fixed investment is now down 6.7%.

As the figure reminds you, 2026 is on pace to be the second straight year during which total FAI contracts in China. That’s unprecedented.

“Beijing does not seem overly troubled by very weak domestic demand,” SocGen’s Michelle Lam and Wei Yao wrote, calling Monday’s data “terrible.” “Recent policy discussions suggest [the Party] increasingly sees the K-shaped pattern as part of the transition from old growth engines — housing and debt — to new ones, namely tech and productivity.”

That makes it sound like there’s a plan here. Or that this is all part of some grand strategy. Suffice to say I have doubts.

I think this situation is — dare I say it — unsustainable. And I think there’s something to Froman’s contention that by and by, “the market for new factories in China will run dry, as did the market for property” and that sooner or later, either due to trade barriers or simply to insufficient global demand, “China’s trade surplus could collapse on itself.”