China’s economy lost momentum toward the end of 2025 even as it met the government’s annual growth target, underscoring an increasingly uneven expansion driven by exports and industrial output while domestic demand continued to lag.
Gross domestic product grew 4.5% in the fourth quarter from a year earlier, the slowest pace since the reopening from Covid lockdowns in late 2022, according to data released Monday by the National Bureau of Statistics.
That marked a deceleration from 4.8% growth in the third quarter.
For the full year, GDP expanded 5%, matching Beijing’s target of “around 5%” and confirming an estimate previously given by President Xi Jinping.
Chinese onshore stocks edged up slightly after the data release, while government bonds and the yuan were little changed, reflecting markets’ tempered response to growth that met expectations but showed signs of strain beneath the surface.
Domestic demand drags on growth
While industrial production remained resilient, key indicators of domestic demand deteriorated more than forecast at the end of the year.
Retail sales rose just 0.9% in December from a year earlier, missing expectations for 1.2% growth and slowing from 1.3% in November.
Fixed-asset investment contracted 3.8% in 2025, worse than economists’ forecasts, as the prolonged real estate downturn deepened.
Consumer spending and business investment have been weighed down by a weak jobs market and falling home prices.
The urban unemployment rate held steady at 5.1% in December, offering little sign of improvement in labor conditions.
“Despite achieving the 5% growth target, China’s economy actually posted weaker on-year growth one quarter after another in 2025, which shows domestic demand is still weak,” said Larry Hu, head of China economics at Macquarie Group.
“The most important thing is not the headline growth, but whether China can break away from the current two-speed growth.”
Exports and industry prop up activity
Manufacturing and exports continued to provide crucial support to the economy in 2025, helping Beijing avoid large-scale stimulus despite mounting headwinds.
Industrial output rose 5.2% in December, beating expectations and accelerating from the previous month.
Net exports contributed about a third of economic growth last year, according to NBS head Kang Yi, the highest share since 1997.
China also posted a record trade surplus of nearly $1.2 trillion, driven by strong shipments to non-US markets as exporters sought to diversify amid global trade frictions.
“Plunging investment and weak household consumption have made the Chinese economy increasingly reliant on exports to power growth, a situation that is untenable for China as well as the world economy,” said Eswar Prasad, a professor of trade policy and economics at Cornell University.
Policy challenges and demographic pressures
Looking ahead, economists anticipate that the uneven growth pattern will persist into 2026.
Beijing has signaled a greater willingness to support consumers, but remains cautious about unleashing massive stimulus due to concerns over local government debt.
The outlook is further complicated by deepening demographic challenges.
China’s birthrate fell to 5.6 births per 1,000 people in 2025, the lowest since 1949, while total population declined for a fourth straight year.
A shrinking workforce and aging population threaten long-term growth and add pressure to the pension system, even as policymakers roll out incentives to encourage higher fertility.
As China aims to become a moderately developed economy by 2035, policymakers face the difficult task of sustaining growth while rebalancing the economy toward stronger domestic demand in an increasingly protectionist global environment.
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