During the five-day May Day holiday, Chinese spending increased by 8% year-on-year, reaching 180.27 billion yuan (approximately $25 billion), indicating that consumer activity remains vibrant.

An estimated 314 million domestic trips were made, marking a 6.4% increase compared to the previous year.

The May Day holiday, one of the country’s longest breaks, is closely watched as a barometer of Chinese consumer confidence.

China’s Ministry of Culture and Tourism recorded 314 million domestic trips during the holiday, a 6.5% increase, while the number of transactions using Weixin Pay, a popular payment app, rose by more than 10% year-on-year, with a notable surge in restaurant spending.

According to Reuters’ calculations based on official data, total spending per person during the five-day May holiday period, typically a busy time for family travel, increased by 1.5% to 574.1 yuan.

This figure remained below pre-pandemic levels, when spending per person was 603.4 yuan.

Consumption in the world’s second-largest economy has been hurt by a post-pandemic slowdown and a prolonged property crisis, with the effects of the US-China trade war expected to deepen these challenges.

Meanwhile, China’s services sector saw a slowdown in new order growth compared to March, according to a private sector survey released on Tuesday, due to uncertainty caused by US tariffs.

Despite stronger-than-expected economic growth in the first quarter, supported by government stimulus, the Chinese economy continues to face persistent deflationary risks.

The Caixin/S&P Global services purchasing managers’ index (PMI) fell to 50.7 from 51.9 in March, marking its lowest reading since September.

This aligns largely with the official survey, which showed services activity in China easing to 50.1 from 50.3 the previous month.

The Caixin services survey indicated that new business growth slowed to its weakest level since December 2022, although export orders saw some increase, partly linked to the recovery in tourism.

Zichun Huang, China economist at Capital Economics, said the drop in the Caixin PMI “provides further evidence that the trade war is weighing on economic activity in China, even beyond the manufacturing sector.”

Huang added, “While some caution is clearly warranted, we suspect firms are overstating how much damage US tariffs will do.”

Around 48% of China’s workforce was employed in the services sector in 2023, and the sector contributed 56.7% to total GDP last year. However, US President Donald Trump’s trade actions could hit the manufacturing sector and damage businesses’ hiring plans and consumer confidence.

Business sentiment in the services sector grew at its slowest pace since February 2020, with companies citing US tariffs as a major concern.

Service providers cut jobs for a second consecutive month to reduce costs, leading to an increase in backlogs of work and pushing the relevant indicator into expansionary territory for the first time this year.

Firms also lowered prices to attract customers despite high input costs.

Chinese exporters are increasing their efforts to conceal the true origin of their goods by shipping them through third countries to avoid tariffs imposed by US President Donald Trump.

According to a report by the Financial Times (FT), the influx of goods from China has sounded alarm bells in neighboring countries, which are reluctant to become transshipment points for trade directed at the US.

The increasing prevalence of this tactic highlights concerns that new tariffs of up to 145% imposed by Trump on Chinese goods will impede exporters’ access to one of their most important markets.

Sarah Ou, a salesperson at Baitai Lighting, an exporter based in the southern Chinese city of Zhongshan, told the FT, “The tariff is very high,” adding, “But we can sell the goods to neighboring countries, and the neighboring countries can sell them to the US, and thus the tariffs are reduced.”

US trade laws require goods to undergo a “substantial transformation” in a country, typically including processing or manufacturing that adds significant value, to be considered the country of origin for tariff purposes.

However, advertisements on Chinese social media platforms like Xiaohongshu offer exporters the option of sending their goods to countries like Malaysia, obtaining new certificates of origin there, and then shipping them to the US.

An advertisement posted this week on Xiaohongshu by an account called ‘Ruby — Third Country Transshipment’ read, “Did the US impose tariffs on Chinese products? Transit through Malaysia and ‘transform’ them into Southeast Asian goods!”

It added, “Did the US impose restrictions on Chinese-origin wood flooring and tableware? ‘Wash the origin’ in Malaysia and pass customs smoothly!”

South Korea’s customs service announced last month that it had found 29.5 billion won ($21 million) worth of foreign products with falsified countries of origin in the first quarter of this year, most of which came from China and were almost entirely destined for the US.

The agency said in a statement, “Due to changes in the US government’s trade policy, we are seeing a sharp increase recently in cases where our country is being used as a transit point for products to avoid different tariffs and restrictions.”

Vietnam’s Ministry of Industry and Trade last month called on local trade associations, exporters, and manufacturers to strengthen origin controls for raw materials and input goods and prevent the issuance of fraudulent certificates.

Thailand’s Department of Foreign Trade also announced measures last month to tighten origin controls on products shipped to the US to prevent tariff evasion.

Ou from Baitai said that, like many Chinese manufacturers, the company ships goods “free on board” (FOB), meaning responsibility passes to the buyer once the goods leave the port of departure, thus reducing the exporter’s legal risk.

She said, “Customers just have to find a port in Guangzhou or Shenzhen, and as long as the goods reach there, we have completed our task. After that it is not our business.”

Salespeople from two logistics companies said they could ship goods to Malaysia’s Port Klang, where they would transfer the goods to local containers and change their labels and packaging. The salespeople, who asked not to be named, told the FT that the companies had connections with factories in Malaysia that could help issue certificates of origin.

Malaysia’s Ministry of Investment, Trade and Industry stated that the country is “committed to upholding the integrity of international trade practices” and “views any attempt to circumvent tariffs through false or fraudulent declarations, whether related to the value or origin of goods, as a serious offense.”

It added, “If the veracity of these reports is established, we will initiate investigations in cooperation with the customs department and US authorities and take necessary measures.”

China’s foreign and commerce ministries did not respond to the Financial Times‘ requests for comment regarding Chinese exporters.

Former military officials and experts state that nuclear-armed neighbors India and Pakistan have significantly increased their military capabilities following the 2019 clashes, a situation that raises the risk of escalation even in a limited conflict. Tensions are rising between the Indian and Pakistani armies.

Pakistan claims India is planning military intervention after New Delhi blamed Islamabad for a deadly attack on local tourists in the Kashmir region last month. Indian Prime Minister Narendra Modi said he would punish those who supported the attack in a way they “cannot imagine.”

Pakistan denies involvement in the attack but warns it will retaliate if targeted.

In 2019, India conducted airstrikes inside Pakistan after a bombing of an Indian military convoy in Kashmir, stating it had destroyed “terrorist camps.” Pakistani jets conducted retaliatory airstrikes in operations lasting two days and shot down an Indian aircraft. Now, retaliations are occurring intermittently between the Indian and Pakistani armies.

The neighboring countries have fought three wars in 1948, 1965, and 1971, and have clashed countless times since gaining independence, mostly over the Kashmir region, which both claim. Both countries acquired nuclear weapons in the 1990s, and Kashmir is considered one of the world’s most dangerous conflict zones. The Indian and Pakistani armies have since increased their capabilities against potential conflicts.

Military experts state that neither side would consider using nuclear weapons unless cornered, but the risk of escalation is high even in a limited conflict.

Experts speaking to Reuters stated that in such a conflict, it is likely that aircraft, missiles, or drones, which are considered to be of equal strength between India and Pakistan, would be used.

Frank O’Donnell, a visiting fellow in the South Asia Program at the Stimson Center think tank in Washington, said, “Decision-makers in both countries are more willing to take risks in initiating and escalating conflict than they were before 2019.”

“However, without a clear mutual understanding of precise actions, this could inadvertently lead to escalation,” he added.

Both sides have acquired new conventional strike options by purchasing new military equipment since 2019.

Muhammad Faisal, a South Asia security researcher at the University of Technology Sydney, said, “Both sides will think they are in a better position than last time. But we will only know this when we see a real conflict.”

India, in particular, felt it was at a disadvantage in 2019 because it had to rely on aging Russian jets. Since then, it has purchased 36 French-made Rafale fighter jets, considered one of the best Western aircraft, and has ordered more for its navy.

In contrast, Pakistan began purchasing batches of China’s J-10, one of its most advanced fighter jets and considered equivalent to the Rafale, starting in 2022. According to the London-based International Institute for Strategic Studies, Pakistan has at least 20 of these aircraft.

The aircraft have advanced capabilities similar to the Rafale, which is equipped with Meteor air-to-air missiles that operate beyond visual range. A Pakistani security official, who requested anonymity because they were not authorized to speak to the media, said the J-10 is also equipped with similar PL-15 missiles.

To fill gaps in air defense that emerged during the 2019 conflict, India purchased Russia’s battle-tested S-400 mobile anti-aircraft missile system. Pakistan, on the other hand, acquired the HQ-9 from China, which is a lower-tier system based on Russia’s S-300 system.

Anil Golani, a former air marshal in the Indian Air Force and director general of the Center for Air Power Studies think tank in Delhi, said, “In some ways, we are definitely in a better position (than in 2019).”

Speaking to Reuters, Golani added, “The call for action in the country is very high, but in my personal assessment, neither India nor Pakistan wants an all-out conflict.”

On the other hand, the US and China factors are also being discussed. China is India’s rival and Pakistan’s close ally and largest military equipment supplier. The US, meanwhile, has strong relations with India.

Muhammad Faisal from the University of Technology Sydney said, “This could be a competition between Western and Chinese technology,” adding, “For India, there is a dilemma regarding how many air squadrons to allocate to the Pakistan front, as it also needs to defend against China.”

China and India fought a brief border war in 1962, and the two armies clashed most recently in 2022 on the tense Himalayan border.

Pakistan has a fleet of F-16 aircraft purchased during periods when its relations with Washington were stronger. These F-16s were used in the 2019 conflict, leading India to issue a protest note to the US, although New Delhi currently has much closer relations with Washington.

Experts said that this time, to avoid a political tension with F-16s and to leverage the advantage of having more advanced aircraft, Pakistan would likely lead with its Chinese-made J-10s.

However, a drone or ground-launched missile attack is considered more likely because there is no risk of the pilot being shot down.

India has turned to Israel for combat-capable drones and purchased the Heron Mark 2. It has also ordered Predator drones from the US. According to the Pakistani security official, Pakistan has purchased Turkey’s Bayraktar TB2, which Ukraine used in its war with Russia, and also the Akıncı UAV from Turkey.

Amidst the ongoing tension, Pakistan conducted a test of a surface-to-surface ballistic missile with a range of 450 km (280 miles) on Saturday. A statement from the country’s army said the test was conducted to demonstrate the armed forces’ readiness to “protect national security against any aggression.” Pakistan also has short and medium-range missiles that can be fired from land, sea, and air.

India has not yet commented on the test. India’s capabilities include the BrahMos supersonic cruise missile with a range of approximately 300 km and the Agni series of intercontinental ballistic missiles.

The 2019 conflict nearly spiraled out of control with numerous missile strike threats.

Kaiser Tufail, a former fighter pilot in the Pakistan Air Force, said India failed to achieve deterrence in 2019, so this time it would aim for a sharper attack, which would bring more risk.

Modi implied after the 2019 clashes that they felt the lack of the Rafale fighter jets ordered at the time and that the outcome of the conflict might have been different if they had the French fighter jets.

“If you go beyond what we saw in 2019, that becomes very risky,” Tufail said, adding, “It is extremely dangerous for nuclear-armed countries to clash with each other.”