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Capsule toys are popular even among foreign tourists.

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Actually, something unusual is happening.

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Some manufacturers say they aren't hit hard by rising crude oil prices linked to the Middle East situation.

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This is a product from a boutique capsule toy maker, the Cat Sculpture series.

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They use plastic, which has been soaring in price, but they say there is almost no supply anxiety.

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A manufacturer that works with regional mascots and trades with China revealed the reason why.

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Naftha prices haven't really gone up there.

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They seem to have the impression that it's just related to fuel products like gasoline,

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and since production of Chinese-made toys has been dropping for about four years straight,

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demand was already low, but now it's suddenly rising, so it's balancing out.

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They are just using up the leftover raw materials efficiently.

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The background to this is China's domestic economic slump.

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This is a plastic market in China.

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Many shops are shuttered, and because of price wars, they can't lower prices and are left with massive inventory.

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Amid this, surplus resin meant for home appliances and building materials is flowing into the toy industry.

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Since capsule toys are small and don't use much resin, existing stock is enough to absorb current demand.

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The reality of the Chinese economy seen through capsule toys.

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We will analyze the bottom of this.

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Yes.

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As we just saw, the surplus resin caused by China's domestic slump is flowing into toy manufacturing, right?

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How should we interpret this situation?

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Well, it's true that demand for resin in sectors like furniture and building materials

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has dropped significantly due to the real estate slump,

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so that supply is indeed flowing elsewhere, but I think the supply side issues are also quite significant.

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Companies expanded their facilities significantly, including those involved in exports,

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which led to a state of oversupply.

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The balance between supply and demand collapsed, resulting in excess inventory.

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I suspect that some of this surplus inventory is being diverted toward exports.

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I see.

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You mentioned that supply is currently excessive, but I'd also like to look closely at the demand side,

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so let's take a more detailed look at the retail sales figures I mentioned earlier.

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The purple section, which is primarily petroleum.

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This shows a negative figure.

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Petroleum products, that is.

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Is indeed negative, but the negative impact in the automotive sector, shown in orange, really stands out.

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That's true.

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Automobiles typically account for about 30% of retail sales, so the significant decline there is notable.

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I believe policy factors are largely behind this.

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For one, there's a trade-in incentive program for consumer goods that began in 2024,

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which has had the effect of pulling demand forward.

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Another factor is that since January of this year,

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the purchase tax exemption for new energy vehicles was reduced from 10% to 5%,

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which I think is also having an impact.

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In addition, the rising cost of crude oil seems to be driving a decline in gasoline demand.

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I see.

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This decline in petroleum products seems to have started around 2024.

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Was there a specific trigger for this?

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I believe it is primarily due to falling prices.

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Beyond that, as demand for gasoline-powered cars continues to drop in China,

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the demand for gasoline itself is declining as well.

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I think that's what we're seeing.

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I see.

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While I think it was somewhat understood even before the trial run that there would be a reactionary decline,

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were the consumption stimulus measures implemented by China so far effective for a certain period?

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That's correct.

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As you say, this policy did contribute to supporting consumption starting around the second half of 2024.

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Well, from the second half of 2024 through the first half of 2025, that is.

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The effects were mainly seen in home appliances,

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and while I think it did have the effect of propping up otherwise weak consumption,

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it was ultimately a pull-forward of demand that only boosted things for a limited time.

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So I don't see it as a policy that fundamentally lifts consumption.

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Right.

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Where does the fundamental problem lie that keeps it from being a policy that boosts consumption?

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Well, I think the impact of the real estate slump is quite significant.

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Since around 2021, as shown here, real estate-related indicators have continued to deteriorate,

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and since about 70% of urban household assets are held in housing,

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when housing prices decline for a long time, the negative wealth effect inevitably cools consumption.

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I see.

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So, I suppose consumption won't pick up unless that is resolved.

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But another indicator, fixed asset investment for July, was also released today.

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This specifically represents corporate investment and national infrastructure investment,

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but how should we interpret these figures?

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Well, the decline widened in July,

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and the area where the negative margin is expanding most notably is in infrastructure investment.

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Well, infrastructure investment was quite strong in the first quarter,

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and it's said that projects related to the five-year plan were moved up, but there was a subsequent rebound.

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In addition to that, the impact of typhoons and heavy rain,

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as well as the fiscal difficulties in local regions, appear to be affecting the progress of infrastructure investment.

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We've looked at the domestic situation, but I'd also like to look at China's exports,

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which grew by over 20% in July compared to the same month last year, showing strong performance.

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That's right.

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In contrast to the sluggish domestic market, exports are performing quite well,

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particularly in integrated circuits, computers, computer components, and automobiles.

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The strength in integrated circuits and computer components is, I believe,

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driven by the rising global demand for AI-related technologies.

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As for automobiles, while domestic sales are not very strong,

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as we saw earlier, exports are essentially compensating for that domestic slump.

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Meanwhile, the Trump administration recently released a report on transshipment,

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where goods are shipped to the U.S. via third countries with relatively lower tariffs.

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With roughly 12 trillion yen in transshipments coming from China annually,

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effectively putting pressure on the Chinese side, how do you view this report?

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Well, considering that such high tariffs, exceeding 100% at one point,

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were imposed last year, it makes sense that this type of transshipment activity has increased.

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Now, regarding simple exports, for instance,

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those using quite basic methods like relabeling products to disguise their country of origin,

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the U.S. and third countries, including those in Southeast Asia,

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have been significantly stepping up their monitoring efforts.

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So, I think it's becoming quite difficult to pull that off in the current climate.

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Yeah.

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As for the volume, rather than illicit exports, there has been a trend of legitimate exports, so to speak.

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Ever since the first Trump administration and the start of these trade wars,

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Chinese companies and foreign firms based in China

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have been gradually shifting their production bases to Southeast Asia and other third countries.

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To strengthen production there, they are exporting components from China,

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adding legitimate value, and then exporting those goods to the U.S. and elsewhere.

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That trend is definitely growing.

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Does that mean the countermeasures taken so far have been effective?

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That's right.

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Well, I don't think they're perfect, but in response to those measures,

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I believe the move toward adding legitimate value is gaining momentum.

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Right.

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How do you view the future impact of the Trump tariffs?

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Well, I think there is a high degree of uncertainty moving forward.

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For instance, just the other day, as noted here,

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the tariffs on China based on Section 301 of the Trade Act, citing forced labor, were set at 12.5%.

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There's also talk that more might be imposed later due to excess capacity.

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So, the tariff rate, which was 10% until July, could potentially rise to around 20%.

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Well, for now, U.S.-China relations are moving towards stabilization,

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so I don't really foresee a situation where things suddenly take a turn for the worse.

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Even including indirect exports, the fact that shipments from China to the U.S. have grown this much is striking,

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especially given the high tariffs and the ongoing trade war,

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but I think it shows there is a real need in the U.S.

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Is that mainly due to semiconductors, specifically what are called legacy chips?

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Yeah, that's right. I think there are movements like that as well.

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As you pointed out, regarding general-purpose semiconductors,

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while AI-related demand is currently rising,

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it's said that these AI servers also use a significant amount of general-purpose chips,

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so that demand may be driving the increase in exports from China to the U.S.

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Next, we will ask if China can reach its GDP growth target.