China growth slows to 4.5% in Q4, even as country meets 2025 guidance

China’s National Bureau of Statistics (NBS) announced today that the world’s second-largest economy grew by 4.5% year-on-year in the fourth quarter of 2025. The figure represents a slight slowdown from the 4.8% growth recorded in the third quarter, the slowest quarterly pace in three years.

China’s economy will grow by 5% in 2025.

Despite a cooling performance at the end of the year, China’s economy grew by 5.0% for the full year of 2025, successfully reaching Beijing’s official target of “around 5%. The achievement was largely driven by a record export engine that offset a lingering slump in the domestic property market and tepid consumer spending.”

Meanwhile, some believe that China is overestimating its growth. “We think growth is weaker than the official data suggests,” said Zichun Huang, China economist at Capital Economics. According to HuangOfficial figures “exceed the pace of economic expansion” by at least 1.5 percentage points.

A Tale of Two Economies: Manufacturing Vs. consumption

Data from 2025 point to a growing “K-shaped” divergence in China’s economy. On the one hand, high-tech production and exports have reached historic highs; on the other hand, domestic demand and real estate continued to lag behind the national average.

1. Export Engine

Chinese manufacturers have defied significant global trade tensions, including renewed US tariffs under the Trump administration, by aggressively diversifying into emerging markets in Asia, Africa and Latin America.

• Trade Surplus: China posted a record trade surplus of $1.2 trillion in 2025, a 20% increase from the previous year.
• Industry strength: Industrial production rose 5.2% in December, led by sectors such as electric vehicles, shipbuilding and green energy technology.

2. Homemade Drags

While factories hummed, Chinese households remained cautious. The real estate sector, once the main engine of China’s growth, has shown no signs of a strong recovery.

• Property: Property investment plunged 17.2% for the year as falling house prices continued to erode household wealth.
• Retail sales: Growth in retail sales slowed to just 0.9% in December, despite government “compensation” subsidies aimed at spurring spending on appliances and vehicles.

China is trying to mend relations with some of its trading partners

Analysts warn that relying on exports to carry the economy is a strategy with diminishing returns. However, China is trying to mend relations with some of its trading partners. Last week, Canada announced it was replacing its blanket 100% tariffs on electric vehicle imports with a more standard trade framework, reducing the tariff from 100% to 6.1% under the most-favoured-nation (MFN) rate. However, an import quota of 49,000 would be introduced, rising to 70,000 over a five-year period.

Earlier, the European Union (EU) and China agreed to replace punitive tariffs on Chinese electric vehicles with a “price commitment” mechanism, commonly known as a floor price.

The deal aims to de-escalate the trade war that has been simmering since 2024, providing a “soft landing” for both the European car industry and Chinese exporters.

China’s massive excess manufacturing capacity supports exports

Notably, China has massive excess manufacturing capacity that drives its exports.

“China is effectively pushing growth through loss-making exports, and that is not sustainable. While price cuts will keep volumes up, they will undermine profits and ultimately growth,” said Alicia Garcia-Herrero, chief Asia-Pacific economist at French bank Natixis.

China’s growth is slowing

“The slowdown in the fourth quarter is a ‘tell’ – suggesting that China enters 2026 with a slowing pace rather than a new upswing,” noted Charu Chanana, chief investment strategist at Saxo.

To sustain growth in 2026, Beijing is expected to lean toward more aggressive fiscal stimulus. The central government has already indicated a “proactive” stance, likely to focus on strengthening the social safety net to encourage households to exchange their “precautionary savings” for active consumption.

China has now entered its new period of the 15th Five-Year Plan with a decisive shift towards a “slightly loose” monetary policy. Beijing, battered by a multi-year housing slump and tepid domestic consumption, is doubling down on targeted stimulus measures to kick off the year.

The PBOC cut rates to spur growth

The PBOC cut interest rates on all structural monetary policy instruments by 25 basis points (0.25%). With effect from today, it reduced the one-year lending rate from 1.5% to 1.25%. Another 500 billion yuan (~US$71 billion) was allocated to credit facilities with a reserved quota of 1 trillion yuan specifically for private small and medium enterprises (SMEs).

PBOC Deputy Governor Zou Lan signaled that there is still “sufficient room” for further cuts in benchmark interest rates and the minimum reserve ratio (RRR) later in the year.

To address the ongoing “property pull”, the authorities have reduced the minimum down payment for commercial property mortgages to 30%. This is a direct attempt to reduce the excess of unsold commercial inventory that has been weighing on the balance sheets of local governments.

Beijing is expanding its popular “trade” programs for consumer goods. The government is issuing 62.5 billion yuan ($9 billion) in ultra-long special bonds to finance the first phase of subsidies in 2026. The funds incentivize households to replace aging cars, smartphones and home appliances with newer, greener models.

China’s stimulus package is quite targeted this time around

the “bazooka” stimulus packages of 2008 or 2015 that focused on massive infrastructure (roads and bridges), the 2026 strategy is surgical In contrast, apparently, because of the already high debt burden the country faces. A massive 1.2 trillion yuan was earmarked for technological innovation and industrial upgrades. Beijing is prioritizing “new productive forces” such as artificial intelligence (AI), robotics and green energy to move China up the global value chain.

China, in particular, is supporting its tech companies amid an apparent tech war with the US.

China’s Ministry of Industry and Information Technology (MIIT) recently released a comprehensive action plan for high-quality development of industrial internet platforms (2026-2028) as a major step to consolidate its manufacturing prowess.

The plan is designed to bridge the gap between China’s massive industrial data and growing AI power, aiming to cultivate “new quality manufacturing forces” across the country’s manufacturing landscape.

China’s five-year plan focuses on artificial intelligence

China’s 15th Five-Year Plan (2026-2030) signals a strategic direction from breakthrough innovation (“zero to one”) to widespread use and scaling (“one to 100”).

By standardizing and strengthening industrial internet platforms, China aims to secure its supply chains against global instability and ensure that its manufacturing sector remains the most competitive and technologically advanced in the world.