The 'Brittle Fracture': Inside China's October Economic Inflection Point

How much longer can China's economy hold? For years, this question has haunted observers. The economic indicators released for October offer a deeply unsettling answer: the structural fracture of China's economy appears to have already begun.

The Terrifying Conclusion Hidden in October's 'Beautified' Data

This alarming conclusion emerges from the work of Chinese economist Lao Man, who compiled and analyzed macroeconomic data published by China's own government.

It must be stated at the outset that all these statistics have already been "beautified." The systematic embellishment, optimization, and political adjustment of China's economic data is widely acknowledged both inside and outside the country. If even the polished numbers reveal signs of fracture, the real situation may be far more severe.

A basic fact must be understood: during the first three quarters of 2025, China's apparent economic stability was sustained only because the central bank engaged in massive money creation through outright reverse repos. This method allowed the state to print money from nothing, providing the illusion of stability in an economy already under extreme strain.

How China Printed Nearly a Trillion Dollars

In an outright reverse repo operation, China's Ministry of Finance issues government bonds. These bonds are nominally purchased by commercial banks, but in practice the banks almost immediately sell them to the People's Bank of China (PBoC), typically on three- to six-month terms. Upon maturity, the banks are supposed to repurchase them.

However, in operation, the central bank repeatedly rolls over these transactions and continues buying more bonds. The commercial banks never truly need to redeem them.

Through this mechanism, the PBoC has printed money out of thin air to prop up the economy. By mid-November, the central bank had already created approximately $928 billion, and by year's end, the figure is expected to exceed $980 billion. This flood of liquidity spurred a deceptive stock market rally in the first three quarters — a "fake bull market" underpinned not by growth but by monetary distortion.

Crucially, money created from nothing never enters the real economy's circulation. No country has ever been able to solve economic problems by mere monetary creation.

In China's case, most of this money has flowed into local infrastructure projects. However, widespread corruption ensures that much of it is siphoned off by officials, channeled into equities, transferred abroad, or converted to private cryptocurrency holdings. Very little becomes genuine economic cash flow.

The One-Year Limit of Money Printing — and Why October Marks the Breaking Point

History shows that printing money to support an economy generally hits its limit after about a year. China's central bank began this program on July 1, 2024. More than 12 months have now passed. This timing aligns precisely with the economic deterioration seen after October, when the structural fracture appears to have begun.

The evidence becomes clear when one examines the detailed data. The first — and most revealing — is China's fiscal revenue and expenditure.

Fiscal Distress: A Sharp Contraction in Government Cash Flow

In the above fiscal report, the final column shows China's budget deficit. As of the end of October, the deficit stood at $1,206 billion USD, a reduction of $37 billion from the $1,243 billion deficit reported at the end of September.

Why would the deficit shrink?

A closer look at monthly fiscal revenue for 2024 and 2025 reveals that the first five months of 2025 were exceptionally weak, with negative year-on-year revenue growth. Beginning in June, revenue increased for four consecutive months — driven largely by the extreme tax hikes discussed in one of my earlier episodes.

Yet by October, revenue once again turned negative. This indicates that even with sharp increases in consumption tax, personal income tax, and social security contributions, the government can no longer expand its revenue base. Entering the fourth quarter, the situation is likely to worsen, with revenue declines accelerating.

On the expenditure side, October saw an extraordinary 19.1% contraction — the steepest single-month drop ever recorded. A mere 0.6% decrease in revenue triggered a catastrophic near -20% collapse in spending.

This reveals an acute cash-flow crisis. A fiscal system that survives only through frantic borrowing suddenly ran out of cash in October. That forced all levels of government to slash spending to avoid immediate default.

This marks a direct signal that China's fiscal system is approaching rupture.

Fixed Investment: The Engine of Growth Stalls

Next, we turn to China's fixed investments. Historical data shows a 13.2% decline in 2019. That shows the steepest drop on record at the time. Monthly data for 2025, however, shows a sustained contraction since June, culminating in a 15.5% plunge in October — surpassing the 2019 record.

If such declines persist for another two months, China's construction sector — the backbone of its investment-driven growth model — will face a near-total shutdown. This collapse would also have cascading impacts across employment, steel production, cement, machinery, and local government financing vehicles (LGFVs), threatening systemic instability.

Financing Falls Off a Cliff: The Debt-Driven Model Fails

China's economy is fundamentally debt-driven. Once debt stops expanding, the system collapses. The monthly chart of total social financing (TSF) illustrates this starkly.

Until July, the economy was still managing debt expansion, allowing it to maintain a semblance of stability. But from August onward, financing growth began to contract sharply. It was down 15.4% in August, 6.2% in September, and a devastating 42.2% in October.

Three consecutive months of shrinking financing — especially October's near-halving — indicate that China's economy has lost its forward momentum. The fracture is no longer theoretical; it has already occurred.

Real Estate: A Reawakening Dream Meets Brutal Reality

For many Chinese citizens, the belief that "housing prices only rise" once held the power of a civil religion. But data shows that China's property bubble began bursting in 2021, when new home sales peaked at 1.794 billion square meters before falling to 974 million square meters in 2024.

This year, in 2025, especially in the first half, the decline seemed limited to single digits — rekindling fantasies that the market had bottomed out. However, from August onward, monthly sales plummeted into double-digit declines, reaching 19.6% in October.

Weekly reports from major real estate agencies show the downturn accelerating. November is on track for a 30% decline, and December possibly, seeing sales cut in half.

Developers already on the brink of cash-flow collapse now face a deadly convergence: plunging sales alongside heavy payment obligations in December and January. These are periods when loan repayments, contractor payments, and debt rollover costs peak. Also, even to borrow new money, old debts must be paid first.

A wave of developer bankruptcies and mass cash-flow failures appears unavoidable.

Exports: The Last Veneer Is Torn Away

For months, Chinese media trumpeted rising export numbers as proof of economic resilience, despite United States' trade pressure. In reality, these increases reflected desperate liquidation — exporters dumping inventories at any price simply to trigger export-rebate refunds. Some even sold off factory machinery to generate taxable export entries.

Thus, exports grew through September, with a seemingly impressive 8.22% increase. However, in October, the number abruptly fell to –1.17%. This marks the point at which China's export sector will begin contracting at extreme speed, stripping away the final façade Beijing used to showcase economic strength.

A Human Wave: Migrant Workers Return Home Early

Meanwhile, real-life indicators paint an equally grim picture. Most striking is the early return of China's 300 million migrant workers. With job opportunities in cities shrinking sharply, a massive return-home wave began months ahead of the Lunar New Year — an event that greatly alarms the authorities.

On November 13, China's Ministry of Agriculture and Rural Affairs convened an emergency meeting titled "Two Stabilizations and One Prevention." It called for stabilization of migrant worker employment, stabilization of migrant worker income, and preventing large-scale return-to-poverty. Moreover, official media even introduced the unprecedented slogan: "prevent large-scale return-and-stay-home."

Migrant workers left the countryside originally because farmland cannot support such a large population. Also, rural areas offer few alternative jobs. Now, if cities cannot absorb them, millions may remain in their home regions — creating enormous pressure for social stability.

The Fragile Rural Frontier: A Challenge Beyond the Police State's Reach

China's "stability-maintenance system" is heavily urban, relying on digital surveillance and rapid police mobilization. Any sign of a crowd gathering in a city can be crushed within minutes.

But rural China is vast, dispersed, and largely unpoliced. Many villages have no police presence. If even 1% of the 300 million returning migrant workers — three million people — react to hopelessness with unrest, they would outnumber China's police forces.

Even if nearby townships or counties deploy police to suppress a disturbance, unemployed migrants can simply move elsewhere. They become itinerant rebels — "roving bandits," as Chinese history describes. Many dynasties fell amid such waves of rural uprisings. This is why the regime is deeply alarmed by "large-scale return-and-stay-home." It's also why emergency meetings are now being convened.

Everyday Symptoms: A Society Short on Cash

Other symptoms in daily life echo the macroeconomic collapse: unpaid wages for civil servants, hospital staff, teachers, and sanitation workers. On November 21, the media outlet "New Distribution" reviewed 24 publicly listed retail companies and found that only two reported simultaneous revenue and profit growth. Twenty firms saw profits plunge by 88.9%. Ten experienced drops greater than 50%.

A Convergence of End-Stage Pressures

China now faces not only the specter of mass rural destabilization but also:

a fiscal system nearing total collapse,
soaring unemployment,
intensifying international isolation,
massive capital flight,
a military weakened by political purges,
internal factional conflict, and
pervasive public and bureaucratic resentment.

The cumulative image resembles the terminal atmosphere of a declining dynasty. Beijing may continue projecting confidence. However, when even polished official data can no longer conceal the brittle fracture beneath, it is only a matter of time before more shocking realities surface.

Author: Jennifer Zeng