China's economic growth slows to the lowest in nearly three years, still meeting annual targets; export support masks weak domestic demand

Despite China’s full-year economic growth rate reaching the official target of “about 5%” in 2025, the performance in the fourth quarter shows weak domestic demand and a sluggish growth momentum. The ongoing real estate crisis, slow consumption recovery, and increased reliance on exports add more uncertainty to the future of the world’s second-largest economy. Data from the National Bureau of Statistics indicate that from October to December, GDP growth was only 4.5%, the weakest quarterly performance in nearly three years.

Weak Growth in the Fourth Quarter, Near Three-Year Low

According to data released by China’s National Bureau of Statistics in January, China’s GDP annual growth rate for the fourth quarter of 2025 was 4.5%, not only lower than the 4.8% in the third quarter but also the lowest since the first quarter of 2023. This reflects significant challenges faced by China’s economy amid persistent weak domestic demand, a sluggish real estate sector, and external pressures.

However, for the entire year, China’s GDP still grew by 5%, just meeting the Beijing authorities’ “about 5%” target. Against the backdrop of a slowing global economy and rising geopolitical risks, this achievement can be considered a marginal success.

Although manufacturing performance shows some signs of recovery, other key economic indicators still indicate domestic demand remains weak. Retail sales in December increased by only 0.9% year-over-year, below market expectations of 1.2%, and the weakest growth since December 2022, when China was still in the late stages of pandemic control.

In terms of investment, fixed asset investment for the full year of 2025 declined by 3.8%, significantly below the expected 3% decrease. Real estate development investment plummeted by 17.2%, further deepening the 10.6% decline in 2024, highlighting that the real estate crisis has not yet bottomed out.

Manufacturing Slightly Rebounds, Exports Support Half of the Economy

Industrial output grew by 5.2% in December, exceeding the expected 5% and also better than the previous month’s 4.8%. This partly reflects the resilience of the manufacturing sector, especially driven by continued growth in exports.

In 2025, China recorded a new near $1.2 trillion trade surplus, mainly due to companies actively shifting exports to non-US markets, successfully avoiding potential US tariffs. The statistics bureau pointed out that net exports account for about one-third of GDP, indicating an increased dependence on foreign trade.

OCBC Bank economist Xie Dongming expects that despite trade restrictions and appreciation pressures, China’s exports may still grow by about 3% in 2026.

US Tariff Threats Persist, Trade Outlook Uncertain

Although 2025 performed better than expected, China’s export prospects still face significant challenges. Former US President Donald Trump has again threatened to impose a 25% tariff on countries (including China) trading with Iran and emphasized that the upcoming expiration of the US-China trade truce will not be renewed. Additionally, China’s large trade surplus has caused dissatisfaction among other countries, which believe it impacts their domestic industries and have called for defensive trade policies.

Economists point out that China’s current growth model heavily relies on exports and investment. Without structural reforms to shift toward domestic demand, long-term healthy growth may be difficult to sustain.

Real Estate Slump + Deflationary Pressures, Domestic Economy Under Pressure

Besides external pressures, domestic economic issues in China cannot be ignored. The real estate market continues to decline, coupled with sluggish price indices, intensifying deflationary pressures. Although the Consumer Price Index (CPI) rose by 0.8% in December, the fastest increase in nearly three years, the Producer Price Index (PPI) fell by 1.9%. More concerning is that the GDP deflator has been negative since 2023 and is expected to decline another 0.5% in 2026, setting a record for the longest period of negative growth.

Meanwhile, the total new bank loans in 2025 amounted to 16.27 trillion yuan, the lowest in seven years, indicating low borrowing willingness among businesses and consumers, further reflecting weak domestic demand.

Central Bank Implements Easing Policies, Market Anticipates More Stimulus

In response to economic pressures, China’s central bank recently announced several easing measures, including a 25 basis point reduction in various loan interest rates and expanded credit support for agriculture, technology, and private enterprises.

Goldman Sachs predicts that the People’s Bank of China may cut reserve requirements by another 50 basis points in the first quarter of 2026, along with a 10 basis point reduction in policy interest rates to further stimulate economic growth.

The official statement from the statistics bureau emphasized: “We must adopt more proactive and effective macro policies and continue to expand domestic demand.”

This article “China’s economic growth slows to the lowest in nearly three years, still meets annual target, exports support the outlook but domestic demand remains weak” first appeared on Lian News ABMedia.