China stands out as an exception amid global 'three highs' with low inflation, moderate growth and low rates

Covered in dust and scarred, yet we still must believe in the times. Looking beyond phenomena to essence, investors will gain a different perspective.

Beyond the Surface: August Economic Data in Context

The release of August economic data showed weakening figures for retail sales of consumer goods, social financing, and fixed asset investment, which once triggered a volume-shrinking decline in A-shares. Investors have grown accustomed to using these metrics to gauge the strength or weakness of domestic demand and the robustness of the economy. However, if one looks beyond phenomena to essence, beyond short-term fluctuations to long-term trends, and beyond raw data to underlying logic, entirely different conclusions may emerge.

August's weak retail sales data reflects China's powerful supply capacity leading to price declines and softer nominal readings, rather than a collapse in consumption volumes. Vegetable prices in China are "anomalously" low by global standards: with September seasonal produce hitting the market, the national average wholesale price for 28 types of vegetables is approximately 4.2 yuan per kilogram, meaning common home-cooking vegetables can be bought for just 1 to 3 yuan per jin (500g). Leafy greens sold at 10 yuan for five jin, even with free shipping to your door, represent prices that are hard to find anywhere else in the world.

A Global Context of "Triple Highs"

Looking beyond the short term to the medium and long term, the world is undergoing profound changes unseen in a century:

• Crude oil has returned above $100
• Copper prices are approaching $1,500
• "Asymmetric warfare" makes it difficult for military force to quickly resolve stalemates
• Resource nationalism prevents key resource prices from returning to previous levels
• Digital storms and automation are concentrating resources among tech giants while making employment harder for ordinary people

High inflation, economic weakness, and rising unemployment will be challenges faced by the vast majority of nations.

Some Western media outlets easily distort China's economic situation as a model of growth stagnation caused by deflation and weak real estate investment. But the fact is that the era of the "Great Moderation"—characterized by low inflation and high growth—is over. Most economies now face severe challenges of high inflation and economic stalling. High inflation, high interest rates, and high debt have become the biggest challenges for most economies—yet against this backdrop of global "triple highs," China stands out as almost the sole exception.

China's Unique Position: Low Inflation, Moderate Growth

China's combination of low inflation, moderate economic growth, low valuations, and low risk-free interest rates constitutes a highly enviable bullish portfolio for any country. This outcome did not arise naturally but resulted from years of combining an "active government" with an "effective market."

In areas such as energy, food, transportation, education, healthcare, and security infrastructure, the Chinese government has worked tirelessly for decades to build an efficient foundation of public goods. Meanwhile, in sectors where markets can function effectively, there are no comfortable monopolies within the same domestic track, allowing companies that survive fierce domestic competition to possess global competitiveness.

The Pinglu Canal opened on September 16, the "Six Networks" initiative elevates China's infrastructure further, and 109 major projects planned during the "15th Five-Year Plan" period will continue to drive growth over the next five years. Regarding future economic growth guarantees, China's past capabilities in counter-cyclical and cross-cyclical adjustments mean investors need not worry about short-term ups and downs. One should take a long view; these foundations in heavy industry, logistics, and energy will boost China's total factor productivity for the next decade.

Quality at Affordable Prices: A Long-Standing Pursuit

The physical consumption volume of Chinese residents is not weak; claims that "consumption is poor" are illusions. Per capita consumption of vegetables, watermelons, pork, aquatic products, eggs, smartphone ownership, express delivery packages, communication data usage, and household air conditioning and basic appliances all rank at the level of developed economies worldwide.

Whether viewed from total volume or per capita terms, China is the world's largest producer and consumer of vegetables. Foreign bloggers filming Chinese wet markets, showing piles of leafy greens and fruits sold by the bag, have gone viral on overseas social media platforms. But this "vegetable freedom" was hard-won; it is a livelihood benefit "hard-built" by China over nearly 40 years through the national strategic "Vegetable Basket" project, with virtually no second example found globally.

Additionally, retail sales statistics only include physical goods and catering data; services such as transportation, healthcare, and cultural tourism are excluded. Since service consumption accounts for nearly half of resident spending, retail sales data itself underestimates the true recovery in consumption. China's dense bus and subway networks and affordable, high-quality medical care are not included in retail sales data, yet they improve quality of life and reduce "pain costs" for the people.

Imported Inflation: The Real Global Challenge

It is worth noting that the main challenge currently facing the world economy is pressure from imported inflation. Geopolitical conflicts, trade wars, and resource nationalism may persist long-term. Inflation implies repeated pressures for rate hikes; on September 16, the Federal Reserve raised rates by 25 basis points, and the yield on US 10-year Treasury bonds recently broke through 5%. The risk-free rate is the anchor for investment valuation; rate hikes increase valuation pressure on other major asset classes. If the risk-free rate reaches 5%, stock markets must lower valuations to raise yields to satisfy investors.

However, imported inflation is also difficult to manage through monetary tools. For demand-pull inflation, authorities can use rate hikes to reduce aggregate demand and thus lower inflation. But for imported inflation, which stems from supply-side issues, conventional inflation management tools fail, and the duration of high interest rates alongside high inflation may persist long-term.

For imported inflation, the key to solving the problem lies on the supply side. China's economy possesses strong inflation-absorbing capacity precisely due to its complete industrial system, efficient industrial clusters, solid energy and food reserve systems, and multiple price stabilization mechanisms, thereby keeping risk-free rates low.

In fields such as energy, transportation, and telecommunications, China offers high quality at low prices, significantly suppressing inflation. Currently, China's 10-year government bond yield is 1.68%, while many high-quality Chinese listed companies offer dividend yields above 5%; the direction of capital flows is easy to infer.

Short-Term and Long-Term Guarantees for China's Economy

The world is currently in a period of great change. Oil prices have returned above $100, copper prices are near $1,500, and prices for energy and key resources keep hitting new highs driven by geopolitical conflicts and global resource nationalism waves. Imported inflation will become the new normal for most economies. Both the Russia-Ukraine war and tensions involving the US and Iran demonstrate that under "asymmetric warfare," new forms of conflict make it difficult for military force to quickly resolve disputes.

Suffering from high energy costs, Volkswagen has discussed permanently closing four vehicle assembly plants in Germany, and chemical giant BASF has shut down multiple production lines in Germany, serving as clear evidence.

BASF's integrated site in Zhanjiang, China, officially commenced operations this March. With a total investment of €8.7 billion, it is BASF's largest single investment in history. The site's base electricity comes entirely from wind and solar power within Guangdong Province, locking in costs via a 25-year green electricity long-term agreement; customs clearance at Donghai Island facilitates rapid import of raw materials through measures like "advance declaration," "appointment inspection," and "inspect upon arrival, release upon completion"; furthermore, the Guangzhou-Zhanjiang High-Speed Railway opened on December 22, 2025, promoting supply chain synergy between the site and downstream automotive factories.

Energy and resource prices often trigger cascading effects, leaving countries already trapped in combinations of high inflation, massive debt, and high interest rates in a dilemma. Economists describe the fluctuation effect of energy and resource prices as the "collar effect": like a tightening collar around a puppy's neck, their volatility causes corporate anxiety about profit prospects, and when companies hesitate to invest, it leads to economic contraction and rising unemployment.

While BASF shrinks its domestic German production bases, it simultaneously builds new facilities in Zhanjiang, Guangdong, China. This decision is based on stable expectations regarding China's external environment, including energy, transportation, and industrial clusters.

On September 16, the Pinglu Canal became navigable, opening the shortest, most economical, and most convenient sea outlet channel for Southwest China—the 134.2-kilometer Pinglu Canal leaves a significant mark on China's river network map. After navigation begins, logistics costs are expected to drop by 18% to 30%, saving approximately 5.2 billion yuan in annual social transport fees; since excavation began, it has absorbed over 70,000 workers, paying out more than 2.6 billion yuan in labor remuneration; cumulatively, 14,490 mu of mangroves have been cleaned, with some mangroves restored off-site at triple area covering 275,000 trees across 32.3 hectares.

Fixed Asset Investment: A Nuanced View

Due to the drag from real estate investment, fixed asset investment growth in August fell by 7.2% year-on-year, while excluding real estate development investment, August fixed asset investment growth fell by 4% year-on-year. From the perspective of fixed investment, the market has drawn somewhat pessimistic conclusions.

But in reality, China's economy is in the inaugural year of the "15th Five-Year Plan," with 109 major projects set to continuously drive growth over the next five years. These projects possess dual attributes: in the short term, they provide counter-cyclical support; in the long term, they bear cross-cyclical goals for safety, industry, and green development.

The commissioning of BASF's Zhanjiang project, the opening of the Pinglu Canal, wind and solar bases in desert, Gobi, and wasteland areas, the parallel construction of the "Six Networks," and decades-long efforts in the "Vegetable Basket" and "Rice Bag" projects—these form the foundation of China's current low inflation and moderate growth. They make China a global exception because of the mechanism combining an "active government" and an "effective market."

The Role of an Active Government

An "active government" means providing efficient external public goods to society, not subsidizing enterprises. Roosevelt's New Deal and Johnson's "Great Society" vision both waged war on poverty, provided quality public education for ordinary people, and built universal healthcare and social security systems.

Over time, however, some governments have been captured by interest groups, lacking the public authority, will, and financial capacity to build external public goods. Instead, they adopt the simplest governance model of indiscriminate money printing, leading to high debt, high interest rates, high inflation, decaying infrastructure, and widespread functional illiteracy (people who can recognize characters but cannot understand complex texts or perform calculations).

[Content truncated]