Consolidating the foundation for sustained economic recovery and improvement, and propelling high-quality development to take more solid steps, cannot be achieved without the coordinated efforts of policy support and reform innovation.
In 2025, China's real Gross Domestic Product (GDP) grew by 5%, successfully meeting the full-year target and marking a perfect conclusion to the final year of the "14th Five-Year Plan". This achievement was hard-won against a backdrop of external pressure from extreme tariffs and internal challenges from the transformation of old and new growth drivers. While affirming the stability of the economic foundation, it is also crucial to soberly recognize that the momentum for endogenous domestic economic growth remains insufficient, and the external environment is still complex and severe. Since the end of 2025, macro support policies have been gradually implemented. The Chinese economy is expected to get off to a good start in 2026, but consolidating the foundation for sustained recovery and improvement and driving high-quality development forward with more solid steps depend on the synergistic force of policy support and reform innovation.
The economy advanced under pressure, showcasing numerous bright spots.
In 2025, China's economy and total trade volume both achieved historic leaps. During the "14th Five-Year Plan" period, China's nominal economic aggregate successively surpassed four major thresholds: after breaking through the 110 trillion, 120 trillion, and 130 trillion yuan marks in 2021, 2022, and 2024 respectively, it further exceeded 140 trillion yuan in 2025. Converted using the annual average of the RMB central parity rate, China's per capita GDP reached $13,953 in 2025, remaining above $13,000 for three consecutive years. During the same period, China's goods trade import and export scales rose to 18.48 trillion yuan and 26.99 trillion yuan respectively, with the total import and export value surpassing the 45 trillion yuan mark for the first time, achieving positive growth for nine consecutive years and further consolidating China's position as the world's largest goods trading nation.
Against a backdrop of significantly increased external uncertainties, the maintenance of reasonable growth in China's economic and trade aggregates was primarily attributable to the effective enhancement of economic development quality. First, the transformation and upgrading of industrial production accelerated. In 2025, the value-added of equipment manufacturing and high-tech manufacturing industries above the designated size increased by 9.2% and 9.4% year-on-year respectively, both exceeding the 5.9% growth rate of the total value-added of all industries above the designated size. Their shares in the total value-added of industries above the designated size increased by 2.2 and 0.8 percentage points respectively compared to the previous year.
Second, export diversification improved, and the competitiveness of export goods strengthened. In 2025, China's exports to the United States decreased by 20% year-on-year, but exports to Africa, ASEAN, and the EU grew by 25.8%, 13.4%, and 8.4% respectively, contributing 1.3, 2.2, and 1.2 percentage points to the overall export growth rate. During the same period, the contribution of exports of advanced industrial products such as mechanical and electrical equipment, sound and image equipment, vehicles and other transport equipment, and optical and medical instruments to the overall export growth increased from 4.2 percentage points in the previous year to 4.8 percentage points, serving as an important source of resilience for export growth.
Third, the structure of consumption and investment continued to optimize, with the economy showing a K-shaped recovery. In 2025, the potential for service consumption continued to be released, and consumption of upgraded goods and online consumption maintained relatively rapid growth: service retail sales grew by 5.5%, higher than the 3.8% growth rate of goods retail sales; retail sales of communication equipment, cultural and office supplies, and sports and entertainment goods in units above the designated size increased by 20.9%, 17.3%, and 15.7% respectively, with growth rates accelerating by 11.0, 17.6, and 4.6 percentage points compared to the previous year; online retail sales grew by 8.6%, accounting for 31.9% of total social consumer retail sales, remaining at a historically high level. During the same period, national fixed asset investment (excluding rural households) decreased by 3.8%, but within high-tech industries, investment in information services, and aviation, spacecraft and equipment manufacturing grew at high rates of 28.4% and 16.9% respectively.
Fourth, digital penetration significantly enhanced, and green leadership was fully demonstrated. In 2025, the value-added of digital product manufacturing industries above the designated size grew by 9.3% compared to the previous year, while the value-added of information transmission, software, and IT services grew by 11.1%; electricity generation from clean energy sources such as hydropower, nuclear power, wind power, and solar power in industries above the designated size grew by 8.8% year-on-year, and the share of non-fossil fuels in total energy consumption increased by about 2 percentage points compared to the previous year; energy consumption per unit of value-added in major energy-consuming industries above the designated size, such as building materials, steel, and non-ferrous metals, decreased significantly compared to the previous year.
Since the beginning of 2025, with the rise of innovative forces like DeepSeek and Yushu Robotics, the value of Chinese assets has undergone a systematic revaluation. Under the combined effect of a continuously improving macro narrative and coordinated efforts by relevant authorities to "stabilize the market, stabilize confidence, and stabilize expectations," domestic financial markets successfully withstood high-intensity external shocks, effectively boosting market confidence. Throughout the year, the A-share market showed a volatile upward trend, with the technology sector performing particularly strongly. Market turnover increased by 63.4% year-on-year, and the market's circulating market capitalization broke through the 100 trillion yuan mark. The RMB exchange rate against the US dollar also strengthened against the trend, with both onshore and offshore rates rising above 7 to 1 by year-end, ending a three-year period characterized by more declines than gains and sustained pressure. Previously, several foreign institutions, including Goldman Sachs, had intensively raised their forecasts for China's economic growth, reflecting the global market's high recognition of China's economic resilience and further enhanced confidence in China's economic prospects and RMB assets.
The momentum for endogenous growth still needs strengthening.
While fully acknowledging the major achievements in China's economic and social development, it is also necessary to soberly recognize that numerous old problems and new challenges remain in the current domestic economic operation. In 2025, China's real GDP growth rate was flat compared to the previous year. However, looking at the "troika" of growth drivers, external demand performed better than domestic demand: net exports of goods and services contributed 1.64 percentage points to economic growth, an increase of 0.13 percentage points from the previous year; the combined contribution of consumption and investment fell to 3.37 percentage points, the lowest in nearly three years, with a contribution rate to economic growth of 67.3%, the lowest since 1998.
Final consumption expenditure contributed over 50% to economic growth, playing a "ballast" role in economic operation. However, policy support for consumer trade-ins could not fully mask the weakness in household consumption. In 2025, total retail sales of consumer goods (社零) grew by 3.7% year-on-year, only 0.2 percentage points higher than the previous year. In the second half of the year, as policy support for trade-ins weakened and high base effects set in, the monthly year-on-year growth rate of 社零 continued to decline after May, falling from 6.4% to 0.9% in December, the lowest since February 2023. For the full year, per capita consumption expenditure of national residents grew by 4.4%, a slowdown of 0.9 percentage points from the previous year's growth rate, and lower than the 5.0% growth in per capita disposable income over the same period. Consequently, the average propensity to consume, measured as the ratio of per capita consumption expenditure to per capita disposable income, fell to 68.0%, while the marginal propensity to consume, measured as the change in per capita consumption expenditure divided by the change in per capita disposable income, fell to 60.5%, both hitting three-year lows. Financial data also pointed to weak household consumption willingness, evidenced by households "saving more and borrowing less." In 2025, the household sector's deposit-loan differential (i.e., "new household loans - new household deposits") was 14.20 trillion yuan, 5.71 trillion yuan wider than the average over the past five years. Within this, new household loans amounted to 441.7 billion yuan, 5.06 trillion yuan less than the average over the past five years, which was the main source of the widening deposit-loan differential; household deposits increased by 14.64 trillion yuan, 652.7 billion yuan more than the average increase. According to statistics from the Chinese Academy of Social Sciences, by the end of the third quarter of 2025, the household sector's leverage ratio had fallen to 60.4%, continuing the overall downward trend since the second quarter of 2024 and marking the lowest level since the third quarter of 2020.
Consumption is a function of employment and income; the persistent weakness in household consumption expenditure is primarily due to continued slowing income growth. In 2025, the year-on-year growth rate of per capita disposable income for national residents fell to 5.0%, 1.1 percentage points lower than the compound average growth rate of the past five years. Looking at the income structure, net property income grew by 1.6%, a growth rate 4.0 percentage points lower than the compound average of the past five years, making it the biggest drag. Its share in residents' disposable income fell to 8.0%, the lowest since 2017. During the same period, wage income, net business income, and net transfer income grew by 5.3%, 5.0%, and 5.7% respectively, all lower than their respective five-year average growth rates by 1.0, 0.7, and 0.4 percentage points. Among these, net transfer income had the smallest negative impact on per capita disposable income and its growth rate was 0.7 percentage points higher than the average growth rate, which preliminarily reflects the positive effects of macro policies emphasizing livelihood orientation and the close integration of investing in physical assets and investing in human capital.
Compared to the weakness on the consumption side, the downward pressure on the investment side was more pronounced. In 2025, fixed asset investment decreased by 3.8% year-on-year, marking the first annual negative growth. By sector, manufacturing investment still maintained positive growth, but the growth rate dropped from 9.2% in the previous year to 0.6%, the lowest in nearly five years. This reflects the effectiveness of "anti-involution" policies in curbing inefficient and repetitive investment within industries, and also illustrates the constraining effect of weak demand and pressure on corporate profits on investment expansion willingness. Infrastructure investment (excluding power) and real estate development investment decreased by 2.2% and 17.2% respectively, with the latter declining for the fourth consecutive year, reaching the highest rate of decline in nearly four years, and the monthly decline rate continued to widen since the beginning of the year. The volume and price of commercial housing sales continued to decline, but the rate of decline narrowed, with the declines in sales area and sales value dropping from 12.9% and 17.1% in the previous year to 8.7% and 12.6% respectively.
As the effects of policies to expand domestic demand and "anti-involution" became apparent, positive changes emerged in domestic prices by the end of 2025. The Consumer Price Index (CPI) grew by 0.8% year-on-year in December, the highest since March 2023. The core CPI remained above 1% for four consecutive months, and the Producer Price Index (PPI) showed positive month-on-month growth for three consecutive months, with the year-on-year decline narrowing to 1.9%. However, due to the prominent contradiction between strong supply and weak demand domestically, the full-year CPI shifted from a 0.2% increase in the previous year to zero growth, the PPI decline rate increased from 2.2% to 2.6%, and the GDP deflator decline widened from 0.5% and 0.8% in the previous two years to 1.0%. In response, the Central Economic Work Conference at the end of 5首次 proposed for the first time that promoting stable economic growth and a reasonable rebound in prices should be important considerations for monetary policy. This is a necessary implication of promoting effective qualitative improvement and reasonable quantitative growth in the economy.
Better coordinating the domestic and international situations.
The domestic situation of strong supply and weak demand, along with low price trends, was also reflected in the external sector. On one hand, the divergence between domestic and external demand has led to a continued decoupling of the scale of China's goods imports and exports in recent years. In 2025, the US dollar-denominated goods export volume grew by 5.5% year-on-year to $3.77 trillion, while the import volume remained stable at $2.58 trillion, causing China's goods trade surplus to surpass one trillion US dollars, reaching a record high. Affected by this, the ratio of China's current account surplus to GDP rose to 4% in the third quarter of 2025, the first time since 2011. On the other hand, low domestic price levels led to a decline in the Real Effective Exchange Rate (REER) of the RMB. In 2025, the Nominal Effective Exchange Rate (NEER) index for the RMB compiled by the Bank for International Settlements (BIS) fell by 0.8%, but the RMB REER index fell for the fourth consecutive year, with the rate of decline widening from 0.6% in the previous year to 2.5%.
The record-high goods trade surplus and the decline in the RMB REER index have attracted significant international attention, with reactions from Europe being particularly strong. Affected by the ongoing China-US trade friction, China's exports to the EU have grown rapidly in recent years, making the EU a major source of China's trade surplus. In 2025, China's trade surplus with the EU widened to $291.9 billion, exceeding the surplus with the US for the first time. During the same period, the Euro REER index rose by 4.9%, while the RMB REER fell, reflecting the weakened competitiveness of European export goods relative to Chinese goods. This has provided a pretext for various sectors in Europe to pressure China, exacerbating the risk of trade protectionism.
Against the backdrop of persistently weak domestic demand, the contribution rate of external demand to China's economic growth has remained above 30% for two consecutive years, becoming a key force supporting China's economic resilience. However, facing an increasingly complex external environment, it is still necessary to closely monitor the downside risks to the external demand outlook. A recent survey by DP World of approximately 3,500 corporate executives across eight industries in 19 countries/regions found that 53% of respondents expected policy uncertainty to be at a high or extremely high level, and 90% expected trade barriers to increase or remain unchanged. However, a significant 94% of respondents expected trade growth momentum in 2026 to be equal to or faster than in 2025. Differing from the market's optimistic expectations, international organizations hold a relatively cautious attitude towards global trade prospects. In October 2025, the World Trade Organization (WTO) revised down its forecast for global goods trade volume growth in 2026 from 1.8% in August to 0.5%, lower than the projected growth rate of 2.4% for 2025. In January 2026, the International Monetary Fund (IMF) revised up its forecast for global goods and services trade volume growth in 2026 from 2.3% in October 2025 to 2.6%, but it still remains significantly lower than the projected growth rate of 4.1% for 2025.
The Central Economic Work Conference at the end of 2025 emphasized the need to better coordinate domestic economic work and international economic and trade struggles, implement more proactive and effective macro policies, including continuing to implement more proactive fiscal policy and appropriately loose monetary policy, enhancing the foresight, targeting, and synergy of policies, leveraging the integrated effects of existing and incremental policies, strengthening counter-cyclical and cross-cyclical adjustments, improving the effectiveness of macroeconomic governance, and placing "adhering to domestic demand-led growth and building a strong domestic market" at the forefront of key economic tasks for 2026.
Relevant departments acted swiftly after the conference to actively implement the various deployments and requirements of the Central Economic Work Conference. At the end of 2025, the National Development and Reform Commission and the Ministry of Finance announced arrangements for the 2026 "Two New"s policy, optimizing it from three aspects: scope of support, subsidy standards, and implementation mechanisms. They advanced the allocation of the first batch of 62.5 billion yuan in ultra-long-term special treasury bond funds for 2026 to support consumer trade-ins to local governments, and issued the advanced batch list of "Two Major" construction projects and the central budget investment plan for 2026, totaling approximately 295 billion yuan, accelerating the allocation and use节奏 of various funds. On January 15, the People's Bank of China announced a package of significant monetary and financial policies, including cutting interest rates on various structural monetary policy tools by 0.25 percentage points, increasing the quota for relending to support agriculture and small businesses by 500 billion yuan, setting up a separate 1 trillion yuan relending quota for private enterprises, and reducing the minimum down payment ratio for commercial housing purchase loans to 30%, while also emphasizing that there is still some room for RRR and interest rate cuts in 2026.
With the support of relevant policies, the Chinese economy is expected to achieve a "good start" in 2026. However, it must also be clearly recognized that macro policies can only alleviate cyclical problems but are difficult to cure structural and institutional issues fundamentally. The fundamental path to achieving a substantial recovery of endogenous momentum still lies in driving reforms. This includes improving long-term mechanisms to promote consumption, formulating and implementing plans to increase urban and rural residents' income effectively, enhancing residents' consumption capacity and willingness, promoting high-quality development in the real estate sector guided by the construction of new models, and improving and stabilizing market expectations for real estate. Only by persisting with both policy support and reform innovation can the foundation for economic recovery and improvement be consolidated, and the momentum and vitality for high-quality development be enhanced.
(The author is the Global Chief Economist at Bank of China International Securities.)
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