China's economy met the government's annual growth target of 5% in 2025, but momentum slowed significantly in the final quarter, revealing an increasingly uneven expansion propped up by exports and industrial output while domestic demand languished.
Gross domestic product grew 4.5% year-on-year in the fourth quarter, according to data from the National Bureau of Statistics (NBS). This marked a deceleration from 4.8% growth in the third quarter and was the slowest pace since the economy reopened from Covid lockdowns in late 2022. For the full year, GDP expanded by exactly 5%, matching Beijing's target of "around 5%" and confirming a previous estimate given by President Xi Jinping.
Beneath the headline figure, key indicators of domestic demand deteriorated more than forecast. Retail sales rose just 0.9% in December from a year earlier, missing expectations of 1.2% and slowing from 1.3% in November. For the full year, retail sales reached 50.12 trillion yuan, up 3.7%.
Fixed-asset investment contracted 3.8% in 2025, worse than economists' forecasts, as the prolonged real estate downturn deepened. Property investment saw a steep drop of 17.2%, driven by weak housing sales and tighter financing for developers.
In contrast, manufacturing and exports provided crucial support. Industrial output rose 5.2% in December, beating expectations. For the full year, industrial output grew 5.9%, with equipment and high-tech manufacturing sectors growing above 9%. Net exports contributed about a third of economic growth in 2025, the highest share since 1997, according to NBS head Kang Yi. China posted a record trade surplus of nearly $1.2 trillion.
Specific industrial data showed mixed signals: Aluminum production rose 2.4% to a record 45.02 million tons in 2025, while coal output reached 4.83 billion tons, the highest ever recorded. However, steel output fell 4.4% to 961 million tons, the first annual output under one billion tons since 2019, reflecting lower construction activity.
Economists highlighted the structural challenges. Larry Hu, head of China economics at Macquarie Group, stated, "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." Eswar Prasad, a professor at Cornell University, warned, "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."
The outlook for 2026 remains complicated by deflationary pressures and demographic challenges. Consumer prices remained unchanged in 2025, while the producer price index declined 2.6%. New loans dropped to 16.27 trillion yuan, the lowest in seven years. China's birthrate fell to 5.6 births per 1,000 people in 2025, the lowest since 1949, while the total population declined for a fourth straight year.
Market response was muted, with Chinese onshore stocks edging up slightly after the data release, while government bonds and the yuan were little changed. The People's Bank of China has already lowered interest rates by 25 basis points, and analysts at Goldman Sachs expect further cuts and a reduction in the reserve requirement ratio in the first half of 2026.
