China’s Q4 Growth Slows to 4.5% Even as the Country Meets 2025 Guidance

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

China’s Economy Grew by 5% in 2025

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

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

A Tale of Two Economies: Manufacturing vs. Consumption

The 2025 data highlights a growing “K-shaped” divergence within the Chinese economy. On one side, high-tech manufacturing and exports reached historic highs; on the other, domestic demand and real estate continued to drag on the national average.

1. The Export Engine

Chinese manufacturers 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 reported a record trade surplus of $1.2 trillion in 2025, a 20% increase from the previous year.
• Industrial Strength: Industrial output rose 5.2% in December, led by sectors like electric vehicles, shipbuilding, and green energy technology.

2. Domestic Drags

While factories hummed, Chinese households remained cautious. The property sector, once the primary driver of Chinese growth, showed little sign of a robust recovery.

• Real Estate: Property investment plunged 17.2% over the year, as falling home prices continued to erode household wealth.
• Retail Sales: Growth in retail sales slowed to just 0.9% in December, despite government “trade-in” subsidies designed to spur spending on appliances and vehicles.

China Has Been 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 has been trying to mend relations with some of its trading partners. Last week, Canada announced that it is replacing its blanket 100% tariffs on electric vehicle imports with a more standard trade framework, lowering the tariff from 100% to 6.1%, in line with the most-favored-nation (MFN) rate. However, an import quota of 49,000 would be in place, which would increase to 70,000 over a five-year period.

Previously, the European Union (EU) and China reached a consensus to replace punitive tariffs on Chinese electric vehicles with a “price undertaking” mechanism, commonly known as a minimum price floor.

This agreement aims to de-escalate a trade war that has simmered since 2024, providing a “soft landing” of sorts for both the European automotive industry and Chinese exporters.

China’s Massive Production Overcapacity Is Fueling Exports

Notably, China has a massive production overcapacity that has been driving its exports.

“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, ultimately, growth,” said Alicia Garcia-Herrero, chief economist for Asia Pacific at French bank Natixis.

China’s Growth Is Slowing Down

“The fourth-quarter slowdown is the ‘tell’—suggesting China enters 2026 with fading momentum rather than a fresh upswing,” noted Charu Chanana, chief investment strategist at Saxo.

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

China has now entered its new 15th Five-Year Plan period with a decisive shift toward a “moderately loose” monetary policy. Reeling from a multi-year property downturn and tepid domestic consumption, Beijing is doubling down on targeted stimulus measures to kickstart the year.

PBOC Has Cut Rates to Spur Growth

The PBOC has cut interest rates on all structural monetary policy tools by 25 basis points (0.25%). It has lowered the one-year relending rate from 1.5% to 1.25%, effective today. An additional 500 billion yuan (~$71 billion) has been allocated to relending facilities, with a dedicated 1 trillion yuan quota specifically for private small-to-medium enterprises (SMEs).

PBOC Deputy Governor Zou Lan signaled that there is still “ample room” for further cuts to benchmark interest rates and the Reserve Requirement Ratio (RRR) later in the year.

To address the persistent “real estate drag,” authorities have slashed the minimum down payment for commercial property mortgages to 30%. This is a direct attempt to reduce the glut of unsold commercial inventory that has weighed on local government balance sheets.

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

China’s Stimulus Package is Quite Targeted This Time

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

Notably, China is backing its tech companies amid the apparent tech war with the US.

In a major move to solidify its manufacturing prowess, China’s Ministry of Industry and Information Technology (MIIT) recently released a comprehensive action plan for the high-quality development of industrial internet platforms (2026–2028).

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

China’s Five-Year Plan Focuses on AI

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

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