Ken Cao-The China Crash Chronicle@KenCao_onChina
China’s factories can produce almost anything. The problem is that Chinese consumers increasingly cannot buy it.
Take AI-powered mattresses. Chinese manufacturers can build sophisticated beds that memorize sleeping positions, improve comfort, and sell for as much as $9,000. The technology is impressive. The factories are enormous.
But many producers are still losing money. Why?
China’s property crisis has crushed demand for new homes. Fewer homes mean fewer beds, appliances, furniture, and renovations. The mattress market has reportedly contracted 8.8%, while profits have fallen 40%.
Air conditioners tell the same story. European heat waves created booming demand for Chinese units, yet major manufacturers remain under pressure. Copper, energy, and shipping costs have risen, while intense competition forces companies to export at rock-bottom prices. They sell more, but earn less.
Electric vehicles are the clearest example. China’s automobile industry generates roughly RMB 4 trillion in revenue and dominates global EV production. Yet the complete-vehicle manufacturing margin has fallen to around 1.5%, while industry profits have reportedly plunged 43%.
China is producing goods at extraordinary scale, but increasingly at negligible margins or outright losses.
This is the central contradiction in China’s economic model: Beijing subsidizes AI, EVs, factories, exports, and infrastructure while households remain financially insecure.
Property prices are falling. Youth unemployment is elevated. Wage expectations are weak. Millions lack stable employment. Families respond rationally by saving instead of spending.
The result is a vicious cycle: Weak consumption creates excess capacity. Excess capacity triggers price wars. Price wars destroy profits. Falling profits weaken employment and wages. That makes consumers even more cautious.
China’s GDP and exports may still look respectable on paper, but the domestic economy tells a different story.
China doesn’t have a production problem. It has a demand problem and the old investment-led policy playbook is no longer fixing it.