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China’s National Bureau of Statistics (NBS) reported today that the world’s second-largest economy grew by 4.5% year-on-year in the fourth quarter of 2025. This figure represents a slight deceleration from the 4.8% growth recorded in the third quarter, representing the slowest quarterly pace in three years.
China’s economy will grow by 5% in 2025
Despite the cool year-end performance, the Chinese economy grew by 5.0% for the full year of 2025, successfully achieving Beijing’s official target of “about 5%.” This achievement was largely driven by a record-breaking export drive that offset a persistent slump in the local real estate market and tepid consumer spending.
On the other hand, some believe that China is overestimating its growth. “We think growth is weaker than the official numbers indicate,” said Zichun Huang, China economist at Capital Economics. According to HuangThe official figures “overestimate the pace of economic expansion” by at least 1.5 percentage points.
A tale of two economies: manufacturing versus consumption
The 2025 data highlights a growing K-shaped divergence within the Chinese economy. On the one hand, high-tech manufacturing and exports have reached historic levels; On the other hand, domestic demand and real estate continued to influence the national average.
- Export engine
Chinese manufacturers have defied significant global trade tensions, including renewed US tariffs under the Trump administration, by aggressively diversifying into emerging markets in Asia, Africa and Latin America.
- Trade Surplus: China announced a record trade surplus of $1.2 trillion in 2025, an increase of 20% from the previous year.
- Industrial Strength: Industrial production rose 5.2% in December, led by sectors such as electric vehicles, shipbuilding and green energy technology.
- Local withdrawal
While factories were running, Chinese families remained cautious. The real estate sector, once the main engine of Chinese growth, has shown little sign of a strong recovery.
- Real Estate: Real estate investment fell by 17.2% over the year, as falling house prices continued to erode household wealth.
- Retail Sales: Retail sales growth slowed to just 0.9% in December, despite government “trade-off” subsidies designed to stimulate spending on appliances and vehicles.
China is trying to repair its relations with some of its trading partners
Analysts warn that relying on exports to support the economy is a strategy with diminishing returns. However, China is trying to mend relations with some of its trading partners. Last week, Canada announced this To replace comprehensive 100% tariffs on electric vehicle imports With a more standardized trade framework, tariff reduction from 100% to 6.1%, in line with the most favored nation rate. However, an import quota of 49,000 pieces will be set, which will rise to 70,000 pieces over a five-year period.
Previously, the EU and China reached a consensus to replace punitive tariffs on Chinese electric vehicles with a “price pledge” mechanism, known as a price floor.
This agreement aims to calm the trade war that has been raging since 2024, providing a “soft landing” for both the European auto industry and Chinese exporters.
China’s massive surplus production capacity fuels exports
It is worth noting that China has a huge surplus production capacity that drives its exports.
“China is effectively driving growth through exports at a loss, and that is not sustainable,” said Alicia Garcia Herrero, chief economist for Asia Pacific at French bank Natixis. “Cutting prices may lead to higher volumes, but it undermines profits and, ultimately, growth.”
Growth in China is slowing
“The slowdown in the fourth quarter is the ‘indicator’ – suggesting that China enters 2026 with fading momentum rather than a new rebound,” noted Charu Chanana, chief investment strategist at Saxo Bank.
To sustain growth in 2026, Beijing is expected to move toward more aggressive fiscal stimulus. The central government has already signaled a “proactive” stance, and is likely to focus on strengthening the social safety net to encourage households to trade in their “precautionary savings” for active consumption.
China has now entered its new 15th Five-Year Plan period with a decisive shift towards a “moderately loose” monetary policy. Reeling from a multi-year real estate downturn and tepid domestic consumption, Beijing is doubling down targeted stimulus measures to start the year.
The People’s Bank of China (PBOC) has cut interest rates to stimulate growth
The People’s Bank of China (PBOC) cut interest rates on all structural monetary policy tools by 25 basis points (0.25%). It reduced the interest rate on one-year loans from 1.5% to 1.25%, effective today. An additional 500 billion yuan (about 71 billion US dollars) was allocated for re-lending facilities, with a share of 1 trillion yuan allocated specifically to small and medium-sized private enterprises.
People’s Bank of China (PBOC) Deputy Governor Zhou Lan noted that there is still “wide scope” for further cuts in benchmark interest rates and the reserve requirement ratio (RRR) later in the year.
To address the ongoing “mortgage drag”, the authorities reduced the minimum down payment for commercial mortgage loans to 30%. This is a direct attempt to reduce the abundance of unsold commercial inventory that has affected the balance sheets of local governments.
Beijing is expanding popular “trade” programs for consumer goods. The government will issue special long-term bonds worth 62.5 billion yuan ($9 billion) to finance the first phase of 2026 subsidies. This money stimulates families to replace old cars, smartphones and home appliances with newer, more environmentally friendly models.
China’s stimulus package is quite targeted this time
Unlike the “bazooka” stimulus packages of 2008 or 2015 that focused on massive infrastructure (roads and bridges), the 2026 strategy is considered surgical, apparently, due to the already high debt burden the country faces. 1.2 trillion yuan has been allocated for technological innovation and industrial modernization. Beijing gives priority to “new productive forces.” artificial intelligence (artificial intelligence), robotics, and green energy to push China up the global value chain.
It is worth noting that China supports its technology companies amid the clear technological war with the United States.
In a major move to enhance its manufacturing prowess, China’s Ministry of Industry and Information Technology recently released a comprehensive action plan for the high-quality development of industrial Internet platforms (2026-2028).
The plan is designed to bridge the gap between China’s industrial big data and the burgeoning power of artificial intelligence, with the aim of growing “new high-quality productive forces” across the country’s industrial landscape.
China’s five-year plan focuses on artificial intelligence
China’s 15th Five-Year Plan (2026-2030) indicates a strategic pivot from pioneering innovation (“zero to one”) to large-scale application and expansion (“one to 100”).
By standardizing and enhancing industrial Internet platforms, China aims to secure its supply chains against global fluctuations and ensure its manufacturing sector remains the most competitive and technologically advanced in the world.
