China's economy presented a complex picture in the fourth quarter of 2025, with GDP growth slightly exceeding expectations while consumer recovery remained sluggish. This unbalanced growth structure poses significant challenges for future policymaking.
GDP Growth Analysis: Hidden Concerns Behind Positive Numbers
China's GDP grew by 4.5% year-on-year in Q4 2025, slightly surpassing market expectations of 4.4% though remaining below the previous quarter's 4.8% growth. The quarterly growth rate of 1.2% also exceeded projections, indicating maintained economic momentum that achieved the annual growth target. However, the 4.5% expansion represents a three-year low, reflecting both structural domestic issues and external challenges.
The stronger-than-expected performance primarily stemmed from robust industrial output, with industrial value-added growing 5.2% year-on-year, outperforming forecasts. This manufacturing sector recovery has been fueled by export demand and domestic investment, though sustainability remains uncertain amid global economic headwinds and rising trade protectionism.
Consumer Weakness: Retail Sales Disappoint
December retail sales grew just 0.9% year-on-year, missing expectations of 1.2% and continuing a downward trend from November's 1.3% increase. This persistent consumer weakness suggests stimulus measures have failed to significantly boost confidence, with spending constrained by property market stagnation, slowing income growth, and economic uncertainty.
As consumption represents a crucial growth driver, sustained weakness could undermine overall economic recovery. More aggressive policy measures may be required to stimulate spending, including tax relief to increase disposable income, strengthened social safety nets, and improved business environments to create jobs.
Investment Imbalance: Property Sector Drag Continues
Fixed asset investment revealed significant structural issues, with overall growth dragged down by persistent real estate declines. December saw fixed asset investment fall 3.8% year-on-year, worse than anticipated, while full-year property investment plummeted 17.2%.
The prolonged property downturn poses systemic risks beyond GDP impacts, affecting local government finances, financial stability, and social welfare. Targeted measures to stabilize the sector appear necessary, including calibrated policy easing for genuine housing demand, expanded affordable housing programs, and strengthened developer oversight.
Policy Recommendations: Balancing Growth and Risk
China's late-2025 economic performance presents policymakers with the challenge of maintaining growth while addressing structural weaknesses. The government must balance stimulus measures with structural reforms and risk prevention.
Key policy considerations include enhanced support for small businesses, strategic industry development, market-oriented reforms, social security improvements, and property market stabilization. These coordinated measures could help achieve more balanced, sustainable growth in 2026.