China’s Economy Grows 5% in 2025 Despite Mixed Domestic Performance

The latest figures from China’s National Bureau of Statistics reveal that the country’s economy expanded by 4.5% annually during the final three months of 2025. This growth rate, though slightly lower than the 4.8% recorded in the previous quarter, marked the weakest performance in three years. For the entire year 2025, China’s economy grew by 5.0%, meeting the government’s stated goal of “around 5%” growth. This achievement came despite challenges in the domestic property sector and sluggish consumer spending, with robust export performance serving as the primary growth driver.

Contrasting Trends in Production and Demand

The 2025 economic data shows a widening disparity between different sectors of China’s economy, often referred to as a “K-shaped” recovery. While high-tech manufacturing and exports reached unprecedented levels, domestic consumption and real estate development continued to underperform. Chinese manufacturers successfully handled heightened trade tensions, including new US tariffs under the Trump administration, by expanding sales to emerging markets across Asia, Africa, and Latin America.

China’s trade surplus reached a historic $1.2 trillion in 2025, representing a 20% increase from the previous year. December saw industrial production rise by 5.2%, with electric vehicles, shipbuilding, and green energy technologies leading the way. Meanwhile, household spending remained subdued, with the property market—once a key economic driver—showing no signs of recovery.

Property investments declined by 17.2% over the year, as falling home prices continued to diminish household wealth. Retail sales growth slowed to just 0.9% in December, despite government incentives encouraging consumers to upgrade appliances and vehicles through trade-in programs.

Shift Toward New Productive Forces

China’s 15th Five-Year Plan signals a strategic pivot from new innovation to widespread application. Authorities are allocating 1.2 trillion yuan to advance technological innovation and industrial upgrades. The focus is on cultivating “new productive forces” like artificial intelligence, robotics, and green energy. These targeted measures aim to move China up the global value chain.

Beijing is strengthening its manufacturing sector to ensure it remains the most competitive and technologically advanced in the world. The Ministry of Industry and Information Technology released a full action plan for the high-quality development of industrial internet platforms. This plan is designed to bridge the gap between China’s massive industrial data and the power of AI.

Policy Adjustments and Trade Relations

While analysts caution that over-reliance on exports may limit long-term growth potential, China has taken steps to improve relations with key trading partners. Canada recently announced it would replace its 100% tariff on Chinese electric vehicles with a more standard trade framework, reducing the tariff to 6.1%, aligned with the most-favored-nation rate, while introducing an annual import quota of 49,000 vehicles, set to rise to 70,000 over five years.

Separately, the European Union and China agreed to replace punitive tariffs on Chinese electric vehicles with a “price undertaking” system, effectively establishing a minimum price threshold. This measure aims to ease trade tensions that have persisted since 2024, offering a controlled resolution for both European automakers and Chinese exporters.

China’s export-driven growth strategy has been fueled by significant production overcapacity. Alicia Garcia-Herrero, chief economist for Asia Pacific at Natixis, noted that China is effectively pushing growth through exports at a loss, and that is not sustainable. She added that cutting prices may keep volumes up, but it undermines profits and, ultimately, growth.

Rather than implementing broad-based stimulus measures like those seen in 2008 or 2015, such as massive infrastructure spending, China’s 2026 strategy focuses on precision-targeted support. The government is prioritizing the development of “new productive forces,” including artificial intelligence, robotics, and green energy, to strengthen China’s position in the global value chain.

Monetary Policy Easing

The People’s Bank of China (PBOC) has introduced measures to support economic activity, including a 25-basis-point reduction in key interest rates. The one-year relending rate was lowered from 1.5% to 1.25%, while an additional 500 billion yuan was allocated to relending programs.

Revitalizing Real Estate and Consumer Spending

Efforts to stabilize the real estate sector include reducing the minimum down payment requirement for commercial mortgages to 30%, aiming to alleviate the burden of unsold inventory on local governments. The goal is to stimulate property purchases and reduce economic drag.

Consumer support initiatives are also expanding. The government has allocated 62.5 billion yuan to fund subsidies for the first phase of 2026, encouraging households to trade in older vehicles and appliances for newer, more energy-efficient models. These measures seek to boost retail sales and clear excess inventory.

Strategic Focus on Technology and Industrial Policy

Unlike past stimulus efforts centered on infrastructure, China’s 2026 approach emphasizes technological advancement. The 1.2 trillion yuan allocation targets upgrades in AI, robotics, and green energy, addressing the high debt levels accumulated in previous years.