The Germans have a word for it. Zugzwang is a term describing a situation in chess and other turn-based games (like government policy) where a player must make a move. Yet every available move worsens their position with different degrees of loss.
China’s current economic data reads like a position under zugzwang. Industrial production slowed in July. Retail sales barely grew. Wind Economic Database on the monthly split show retail services sales growth dropping to about 3.2 percent in July from above 6 percent in January.
Goldman Sachs’ early-Q3 estimate of roughly 4 percent would, if sustained, represent China’s weakest quarterly growth rate in the past decade outside the pandemic period. July’s slowdown is more troubling than April’s because it began from a weaker base and struck sectors that had looked resilient. President Xi Jinping arrives at his September meeting with President Trump holding a poor hand.
Beijing was never forced into zugzwang. In July only 17 of 70 major cities recorded new home price increases. China’s property market has fallen since mid-2021, with national new-home prices down year-on-year since April 2022, per National Bureau of Statistics (NBS) data. Meanwhile, Beijing had two paths open to it. One was repair: a large, direct fiscal push to recapitalize developers, backstop household mortgages, and absorb unsold housing.
The other choice was timid restraint: smaller rate cuts and targeted local support, sized to avoid overloading the central government’s balance sheet but not sized to clear the inventory or restore confidence. Beijing chose restraint, and the bill has been coming due in installments ever since.
The clearest sign of that choice shows up in the ‘credit impulse,’ an indicator tracking not how much credit exists but how fast new credit is accelerating relative to the size of the economy. A rising credit impulse means new lending is accelerating and should show up in growth within six to 12 months. China’s has rolled over from a solidly positive reading to a negative one, meaning the fuel that precedes recovery has been cut, not added. China’s 10-year government bond yield has fallen since February while yields in the US, Germany, and Japan have all risen. If Beijing expected a real recovery this fall, yields would be rising in China too.
Every move available to Beijing carried a cost the leadership judged worse than the one it chose. A larger stimulus meant more debt on a balance sheet already strained. A weaker yuan meant capital flight risk. Opening the credit taps further meant repeating the excesses of 2015. Beijing picked the least uncomfortable weakness and walked into it deliberately, selecting a losing position from a menu of choices, all of them survivable but with varying degrees of pain.
China’s problem is that earlier policy choices have reduced the number of painless choices available now.
The Philippines plays a smaller board but makes the same kind of selection. A stock exchange kept thin, with the country’s biggest exporters absent from it, was not a forced move. It is a preference for concentration among a handful of conglomerates over the harder work of building listing pipelines and enforcing free float. The Philippines’ manufacturing base was never developed. Instead it was offset by remittances from citizens who left because the jobs were never built here. It was decades of choosing the path that required less pain today over the one that offered ‘more pain, more gain’ for tomorrow.
China and the Philippines are not facing the same economic problem. They share a deeper one: past policy choices have narrowed what’s left.
Xi Jinping is due in Washington around September 24, his first visit since Trump returned to office. The trade truce the two sides struck in Busan last year expires in November, so whatever gets settled in September carries a deadline behind it.
Tariff levels, export controls on rare earths and semiconductors, and the broader trade relationship remain unresolved despite a May 2026 agreement. The two sides did establish a ‘Board of Trade’ to formalize it.
Xi does not walk into September with a weak economic hand by accident. A government willing to let a property slump run for years rather than repair it in one shot is a government built to accept unfavorable terms at a negotiating table rather than fight hard to reverse them. What Beijing is playing in September is closer to a poker player checking with a weak hand, betting that the other side blinks first.
Trump has spent years in constant trade battles. Xi has been battling with his own economy.
E-mail me at mangun@gmail.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis provided by AAA Southeast Equities Inc.