China’s economy slows despite export-driven growth
China’s economy expanded by 4.5% in the fourth quarter of 2025, the weakest growth in three years, according to the National Bureau of Statistics. This rate fell short of the 4.8% recorded in the third quarter, closing out a year that still met Beijing’s official target of “around 5%.”
The 5% annual growth for 2025 came despite ongoing weaknesses in domestic demand and the property market. Exports, however, reached unprecedented levels, compensating for declines in real estate investment and sluggish consumer spending. While official statistics show stable growth, some economists argue the numbers overstate the actual expansion. Zichun Huang, a China economist at Capital Economics, estimates the true growth rate may be at least 1.5 percentage points lower.
In 2025, China’s industrial sector outperformed domestic consumption. Factories, especially in high-tech manufacturing, resisted global trade pressures—including renewed U.S. tariffs under the Trump administration—by expanding into new markets in Asia, Africa, and Latin America. December saw industrial output rise 5.2%, driven by electric vehicles, shipbuilding, and green energy technology. The trade surplus also hit a record $1.2 trillion, up 20% from 2024.
K-Shaped Recovery Deepens Domestic Struggles
Domestic challenges persist. Property investment declined 17.2% over the year as falling home prices reduced household wealth. Retail sales growth stalled at just 0.9% in December, despite government subsidies for appliances and vehicles. The gap between China’s export-driven recovery and its struggling domestic sectors has created a K-shaped economy, where growth benefits only a few high-performing industries.
Beijing is adjusting its approach to support growth in 2026. The People’s Bank of China cut interest rates across key monetary tools by 0.25%, lowering the one-year relending rate from 1.5% to 1.25%. An additional 500 billion yuan (~$71 billion) has been allocated to relending facilities, with 1 trillion yuan earmarked specifically for private small-to-medium enterprises. Zou Lan, PBOC Deputy Governor, suggested further rate cuts and reductions to the reserve requirement ratio are likely later in the year.
To revive the property market, authorities reduced the minimum down payment for commercial property mortgages to 30%, aiming to clear unsold inventory. The government is also expanding trade-in programs for consumer goods, issuing 62.5 billion yuan (~$9 billion) in special bonds to subsidize automobiles, smartphones, and home appliances.
Five-Year Plan Focuses on Tech Over Innovation
The 15th Five-Year Plan (2026–2030) formalizes this shift, emphasizing the expansion of existing technologies, such as artificial intelligence, robotics, and green energy, rather than breakthrough innovation.
China’s new stimulus approach reflects lessons from past missteps. Previous years saw broad infrastructure spending that deepened debt, but this year’s strategy targets sectors with stronger long-term returns. The government has allocated 1.2 trillion yuan for technological innovation, including subsidies for AI-driven manufacturing upgrades and green energy projects.
China’s efforts to stabilize trade relations demonstrate a pragmatic response to external pressures. After years of escalating tariffs, particularly on electric vehicles, Beijing has secured concessions from key partners. Canada reduced its EV import tariffs from 100% to 6.1%, aligning with most-favored-nation rates, though a 49,000-unit annual quota, rising to 70,000 over five years, restricts immediate market access. Similarly, the EU’s agreement to replace punitive tariffs with a minimum price floor for Chinese EVs seeks to ease tensions without provoking retaliation. These moves show China’s strategy to reduce trade friction while maintaining export competitiveness, though analysts question how long price-driven growth can last.
