China confirmed on January 19 that its economy grew 5.0% in 2025, successfully meeting the government’s official target despite significant headwinds from weak domestic demand, a decelerating property sector, and lingering global trade uncertainties. However, new data shows that economic momentum softened markedly in the fourth quarter, prompting concerns about the durability of China’s growth as it moves into 2026.
According to the National Bureau of Statistics (NBS), China’s quarter-on-quarter GDP expanded 1.2% from October through December, while year-on-year growth slowed to 4.5%, the weakest quarterly performance in three years. That compares with a 4.8% year-on-year pace in Q3 and reflects subdued activity across consumer spending, investment and other domestic engines of growth. Analysts polled by Reuters had projected a slightly lower 4.4% expansion, but the data nonetheless underscores the challenges facing the world’s second-largest economy.
Economy Meets Target Despite Domestic Weakness
For the full year, China recorded 5.0% GDP growth, matching Beijing’s target and equalling the pace of 2024. This is a notable outcome given the global backdrop of rising protectionism and trade tensions — particularly with the United States — as well as persistent structural imbalances. A record trade surplus of nearly $1.2 trillion in 2025 was a key contributor, driven by exporters’ success in diversifying markets beyond the U.S. and into regions like Europe and Southeast Asia.
But beneath the headline figure, the economy shows clear strains. Retail sales, a key measure of domestic consumption, slowed sharply, with December retail sales up just 0.9% year-on-year, while fixed asset investment declined, marking the first annual contraction in decades. A severe property slump, with investment falling by more than 17%, continues to drag on urban economic activity and consumer confidence.
Industrial Output Holds Up, But Consumers Lag
Industrial production ended the year relatively better, with data showing output rising robustly, especially in manufacturing segments prioritised under China’s strategic industrial upgrading plans. Advanced tech and capital-goods sectors outpaced broader industrial growth, highlighting Beijing’s focus on innovation as a longer-term growth pillar.
Still, analysts warn that reliance on external demand and export-led growth has limits, particularly as global trade barriers rise and geopolitical tensions elevate risks. Without stronger domestic demand and household spending, the economy may struggle to transition smoothly toward the 15th Five-Year Plan (2026–2030) goals, which emphasise consumer-led expansion, innovation, and sustainable development.
Outlook for 2026: A Slower But Managed Growth
Economists widely expect China’s economic expansion to slow further to around 4.5% in 2026, according to recent polls, reflecting continued headwinds but also the likelihood of targeted stimulus measures from policymakers. The People’s Bank of China has signalled potential monetary easing tools, including cuts to reserve requirement ratios or benchmark interest rates, to underpin liquidity.
While the headline growth target was met in 2025, experts emphasise that structural reform — especially measures that bolster consumption, reduce dependence on exports and revive investment — will be critical if China is to sustain healthy growth over the next decade.
