China’s economy achieves 5% growth in 2025 amid export strength and internal fragility

China’s economy expanded by 5% in 2025, successfully meeting the official growth target set by Beijing. This performance slightly surpassed analysts’ projections, who had anticipated a 4.9% expansion, and mirrored the growth rate recorded in 2024, firmly establishing the pace of the world’s second-largest economy.

The robust growth was predominantly fueled by strong exports and a resilient manufacturing sector, highlighting the external sector’s capacity to navigate a challenging global environment. This achievement underscores a critical divergence within the economy, where external trade bolstered overall figures despite persistent internal weaknesses.

However, the announced success masks an uneven recovery, as highlighted by Charu Chanana, chief investment strategist at Saxo. While exports and manufacturing provided significant impetus, the real estate sector and certain segments of domestic demand remained notably subdued throughout the year.

External demand drives overall growth, but internal weakness persists

Despite ongoing trade tensions, Chinese exporters strategically diversified their market presence, expanding beyond the United States. This proactive approach played a crucial role in securing a record trade surplus, which approached nearly $1.2 trillion in 2025, underscoring the adaptability of China’s export-oriented industries.

The manufacturing sector demonstrated considerable resilience, contributing substantially to the annual economic performance. This sustained industrial output proved vital in offsetting some of the drag from internal economic challenges, showcasing the sector’s pivotal role in China’s development model.

Deceleration in fourth quarter signals cautious start to 2026

Despite the positive annual figures, more recent data indicated a loss of momentum towards the end of 2025. The Gross Domestic Product (GDP) grew by 4.5% year-on-year in the fourth quarter, marking a slowdown from the 4.8% recorded in the preceding quarter.

This fourth-quarter performance was closely aligned with market expectations of a 4.4% advance and represented the weakest quarterly growth observed in three years. Analysts suggest this deceleration is “revealing,” implying China will likely enter 2026 with a declining growth trajectory rather than a renewed resurgence. Quarter-on-quarter, GDP advanced 1.2% between October and December, slightly above the anticipated 1.0%, yet still indicating a moderate pace of expansion. Experts generally concur that this year-end slowdown points to a reduced economic impetus at the start of 2026, with no clear signs of a short-term recovery.

Persistent property crisis and declining domestic investment

The enduring weakness in domestic demand remains one of the primary challenges confronting the Chinese economy. Consumption and investment have lost significant steam, pressured by a prolonged crisis in the real estate sector and a pervasive environment of low confidence among consumers and businesses. This has severely hampered internal economic dynamism.

In 2025, fixed asset investment registered a 3.8% decline, marking the first annual fall since the series began in 1996. The property sector experienced an even more dramatic downturn, with real estate investment plummeting by 17.2% over the year, exacerbating financial risks and undermining consumer trust. These figures highlight the significant structural imbalances that continue to impede a broad-based recovery and necessitate comprehensive policy interventions.

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Consumer spending remains subdued despite industrial gains

December’s economic indicators further underscored this uneven landscape. Industrial production saw a 5.2% year-on-year increase, accelerating from November’s figures and demonstrating continued strength in China’s manufacturing base. This robust output reflects effective supply-side management and strong export demand.

Conversely, retail sales advanced by a mere 0.9%, falling short of market expectations and signaling persistent struggles in stimulating domestic consumer demand. This disparity illustrates the challenges in rebalancing the economy towards consumption-led growth, with households remaining cautious amidst economic uncertainties.

Beijing’s policy framework focuses on stability and rebalancing

Recognizing the complex economic environment, the head of the National Bureau of Statistics, Kang Yi, described the 2025 economic growth as “hard-won,” achieved amidst challenges like elevated supply and insufficient demand. Despite the positive headline figure, the weakening property market and deflationary pressures continue to weigh heavily on overall economic performance.

To sustain growth, China’s central bank has initiated targeted interest rate cuts and indicated potential further reductions in bank reserve requirements. Chinese leaders in December also reaffirmed their commitment to a “proactive” fiscal policy, signaling a likely pursuit of around 5% growth for the current year.

Global protectionism looms over China’s export-led strategy

The external environment presents considerable uncertainties for 2026. Increasing global protectionism and unpredictable trade policies from the United States, including threats of new tariffs, heighten risks for the Chinese economy. This reliance on external demand makes China particularly vulnerable to shifts in international trade dynamics and geopolitical tensions.

The global economic landscape requires continuous vigilance from Beijing to safeguard its export-driven growth model. Diversification and strengthening domestic resilience will be crucial in mitigating these growing international pressures.

Currency stability and market reaction after data release

Following the release of the economic data, the Chinese yuan demonstrated stability, holding firm after reaching a 32-month high prior to the announcement. Simultaneously, the benchmark Shanghai Composite index recovered from initial losses, closing the trading day with an upward trend, reflecting cautious investor optimism.

Peking has also pledged to significantly boost the share of household consumption in the economy over the next five years. Currently, household spending accounts for less than 40% of China’s GDP, which is considerably below the global average. Analysts suggest that achieving this rebalance will necessitate advancements in income, employment, and the social safety net to reduce precautionary savings.