China's economy in 2025 achieved its official growth target of around 5%, but the underlying trajectory showed clear deceleration and structural imbalance. Quarterly GDP growth slowed from 5.4% year-on-year in Q1 to 4.5% in Q4, reflecting weakening domestic demand even as external and industrial sectors remained relatively resilient.

Across the year, a consistent pattern emerged: strong export performance and competitive manufacturing offset persistent weakness in property and consumption. This divergence contributed to ongoing disinflationary pressure, with consumer prices broadly flat and producer prices remaining negative throughout the year.

Q1: Strong start driven by exports and industry

China entered 2025 with solid momentum. Industrial production and retail activity both grew steadily, and unemployment remained stable. However, early warning signs were visible in pricing data, with both CPI and PPI declining, signalling weak nominal demand.

Trade dynamics highlighted a key theme for the year: exports rose while imports fell, producing a large trade surplus. High-tech and equipment manufacturing performed strongly, reinforcing the role of advanced industry as a growth driver. In contrast, real estate investment contracted sharply, foreshadowing a sustained drag from the property sector.

Q2: Growth holds, but imbalances deepen

Growth moderated slightly in Q2, but the overall structure of the economy remained unchanged. Industrial output continued to expand, and retail sales held up modestly. However, investment slowed further and the property downturn intensified.

Disinflation persisted, with producer prices declining more steeply, indicating margin pressure and excess capacity. Exports continued to outperform imports, reinforcing dependence on external demand.

Policy easing in May—through a small rate cut and a reduction in reserve requirements, aimed to stabilise expectations and support liquidity. However, the measures were incremental rather than aggressive, reflecting a cautious policy stance amid external uncertainty.

Q3: Controlled slowdown, fragile domestic demand

By Q3, growth slowed further to 4.8% year-on-year. Industrial production remained relatively strong, but consumption weakened, with retail growth slowing noticeably by the end of the quarter.

Investment turned negative, and real estate contraction deepened, highlighting structural weakness in domestic demand. Price indicators remained subdued, reinforcing concerns about deflation and "price-war" dynamics in manufacturing.

Despite these domestic challenges, trade continued to provide support, with exports maintaining steady growth. Policymakers emphasised boosting consumption while avoiding large-scale stimulus, signalling continuity rather than a major policy shift.

Q4: Target met, but domestic weakness intensifies

In the final quarter, GDP growth slowed to 4.5%, bringing full-year growth to 5.0%. While industrial activity remained stable, consumption weakened significantly, with retail sales growth dropping sharply at the end of 2025.

Investment data underscored the depth of domestic strain: overall fixed-asset investment declined, and real estate investment fell steeply, confirming that the property sector had not stabilised.

Inflation remained flat, and producer prices stayed negative, indicating persistent weak demand and limited pricing power. Labour market indicators appeared stable on the surface, but underlying confidence remained fragile.

Exports continued to anchor growth, generating a large trade surplus and compensating for weak domestic activity. However, this reliance on external demand highlighted the economy's imbalance, with manufacturing strength offsetting but not resolving internal weaknesses.

Overall assessment: a two-track economy

To sum up, China's 2025 economy can be characterised as a "two-track" system. On one side, advanced manufacturingand exportsdemonstrated strong competitiveness, supported by global demand and strategic industries such as high-tech manufacturing. On the other, domestic demand sectors (especially real estate and household consumption) remained subdued.

Policy responses throughout the year were measured and targeted, aiming to stabilise growth without large-scale stimulus. While this approach helped maintain macro stability and achieve the growth target, it did not fully address underlying structural imbalances.

Ultimately, 2025 growth was achieved largely through external demand and industrial strength rather than broad-based domestic recovery. The persistence of weak consumption, a deep property downturn, and deflationary pressure suggests that rebalancing toward domestic demand will remain a central challenge for policymakers going forward.

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