China Economy: 5% Growth in 2025, Slowdown & 2026 Stimulus Plan

China’s economic expansion slowed to 4.5% in the fourth quarter of 2025, according to data released today by the National Bureau of Statistics (NBS). Whereas this represents a deceleration from the 4.8% growth recorded in the preceding quarter – marking the slowest pace in three years – the world’s second-largest economy still managed to achieve its full-year target of approximately 5% growth. This outcome was largely propelled by a robust export sector, which helped offset ongoing weakness in the domestic property market and subdued consumer spending.

A Diverging Economic Landscape

The 2025 data reveals a growing divergence within the Chinese economy, often described as “K-shaped.” So certain sectors are thriving while others lag significantly. High-tech manufacturing and exports have reached record levels, while domestic demand and real estate continue to pose challenges. This dynamic presents a complex picture for policymakers as they navigate the economic landscape.

The Export Engine

Despite increased global trade tensions, including renewed US tariffs, Chinese manufacturers have successfully diversified into emerging markets across Asia, Africa, and Latin America. This strategic shift has fueled a record trade surplus of $1.2 trillion in 2025, a 20% increase year-over-year. Industrial output likewise rose by 5.2% in December, driven by sectors like electric vehicles, shipbuilding, and green energy technology. This performance underscores China’s continued strength in manufacturing and its ability to adapt to changing global trade dynamics.

Domestic Headwinds

However, the domestic side of the economy tells a different story. The property sector, historically a major driver of Chinese growth, continues to struggle. Property investment fell by 17.2% over the year, as declining home prices eroded household wealth. Retail sales growth also slowed to just 0.9% in December, despite government efforts to stimulate spending through “trade-in” subsidies for appliances and vehicles. These figures highlight the challenges facing domestic demand and the need for policies to boost consumer confidence.

Trade Relations and Shifting Dynamics

China has been actively working to improve relations with key trading partners, recognizing the importance of international cooperation for sustained economic growth. Last week, Canada announced it was lowering tariffs on electric vehicle imports from China, shifting from a blanket 100% tariff to a more standard rate of 6.1%, aligning with its most-favored-nation status. While an import quota will be implemented, increasing from 49,000 to 70,000 vehicles over five years, this move signals a potential easing of trade tensions. Similarly, the European Union and China reached an agreement to replace punitive tariffs on Chinese electric vehicles with a “price undertaking” mechanism, aiming to de-escalate a trade war that began in 2024. The National Bureau of Statistics reported the per capita GDP in 2025 was 99,665 yuan, up 5.1% from the previous year.

Overcapacity and Export Strategy

A key factor driving China’s export performance is its substantial production overcapacity. Alicia Garcia-Herrero, chief economist for Asia Pacific at Natixis, argues that “China is effectively pushing growth through exports at a loss, and that is not sustainable. Cutting prices may keep volumes up, but it undermines profits and, growth.” This suggests that while exports are currently supporting economic growth, the strategy may not be viable in the long term without addressing the underlying issue of overcapacity.

Looking Ahead: Policy Responses and Stimulus

The slowdown in the fourth quarter suggests that China is entering 2026 with diminishing momentum. To counter this, Beijing is expected to implement more aggressive fiscal stimulus measures. The government has already signaled a “proactive” stance, focusing on strengthening the social safety net to encourage households to spend rather than save. This approach aims to boost domestic demand and reduce reliance on exports.

Monetary Policy Adjustments

The People’s Bank of China (PBOC) has taken steps to ease monetary policy, cutting interest rates on structural monetary policy tools by 25 basis points (0.25%) to 1.25%. An additional 500 billion yuan (~$71 billion) has been allocated to relending facilities, with 1 trillion yuan specifically earmarked for private small-to-medium enterprises (SMEs). PBOC Deputy Governor Zou Lan indicated that there is “ample room” for further cuts to benchmark interest rates and the Reserve Requirement Ratio (RRR) later in the year. These measures are designed to lower borrowing costs and encourage investment.

Addressing the Real Estate Drag

To address the persistent challenges in the real estate sector, authorities have reduced the minimum down payment for commercial property mortgages to 30%, aiming to reduce the glut of unsold commercial inventory that is weighing on local government finances. The government is also extending its “trade-in” programs for consumer goods, issuing 62.5 billion yuan ($9 billion) in ultra-long special bonds to fund subsidies for replacing aging automobiles, smartphones, and home appliances.

A Targeted Stimulus Approach

Unlike the large-scale stimulus packages of 2008 and 2015, the 2026 strategy is more targeted, likely due to the country’s high debt burden. A significant 1.2 trillion yuan has been allocated to technological innovation and industrial upgrades, prioritizing “new productive forces” such as artificial intelligence (AI), robotics, and green energy. This reflects a broader effort to move China up the global value chain and enhance its competitiveness. China’s Ministry of Industry and Information Technology (MIIT) recently released a plan for the high-quality development of industrial internet platforms (2026–2028), aiming to integrate industrial data with AI to foster innovation. The National Bureau of Statistics of China provides further data and analysis on the country’s economic performance.

The Five-Year Plan and AI Focus

China’s 15th Five-Year Plan (2026-2030) signals a strategic shift from groundbreaking innovation to widespread application and scaling of existing technologies. By standardizing and boosting industrial internet platforms, China aims to secure its supply chains and maintain its position as a leading manufacturing hub. The gross national income in 2025 was 139,370.0 billion yuan, according to the People’s Republic of China statistics.

The coming months will be crucial in determining whether Beijing’s policy adjustments can effectively reignite economic growth and address the underlying structural challenges facing the Chinese economy. The success of these efforts will have significant implications not only for China but also for the global economy.