China's economy to grow 5% in 2025 driven by exports and tariffs

China’s economy has shown resilience in the face of various challenges, achieving a growth rate of 5% in 2025. This steady expansion has been largely fueled by robust export activities, despite the imposition of tariffs by the U.S. government under former President Donald Trump. However, as the year progressed, the growth rate faced some deceleration, highlighting the complexities of China's economic landscape.

China's Economic Performance in 2025

The Chinese economy expanded at a 5% annual pace in 2025, a figure that aligns closely with the government's target of "around 5%." Despite this growth, the last quarter of the year recorded a slowdown, with the economy growing at just 4.5%. This marked the slowest quarterly growth since late 2022, a period that coincided with the easing of strict COVID-19 restrictions.

China, being the world's second-largest economy, has been striving to bolster its growth trajectory, especially in light of setbacks in the property market and ongoing disruptions caused by the pandemic. These events have compelled the Chinese leadership to focus on stimulating economic activity through various measures.

Key Factors Contributing to Growth

One of the primary factors behind China's growth has been its strong export performance, which was critical in offsetting weaknesses in domestic consumer spending and business investments. In 2025, China achieved a record trade surplus of $1.2 trillion, a significant achievement that underscores the country's position in global trade.

• Exports: Strong international demand contributed significantly to economic growth.
• Trade Surplus: A record surplus of $1.2 trillion reflects the competitiveness of Chinese goods.
• Government Policies: Initiatives aimed at stimulating domestic consumption have been put in place but have had limited success.

Challenges from Tariffs and Global Trade Dynamics

The trade relationship between China and the United States has been particularly strained due to tariffs imposed by the Trump administration. While U.S. exports to China have decreased, this decline has been somewhat mitigated by increased shipments to other countries. However, the rising global import duties prompted by China’s growing exports may create a challenging environment for sustained growth.

Lynn Song, chief economist at ING for Greater China, raises concerns about how long export-driven growth can remain sustainable. If more countries follow suit in increasing tariffs similar to actions taken by Mexico and the EU, it could lead to a tighter economic squeeze for China.

Domestic Demand and Consumer Behavior

Despite the focus on boosting domestic demand, the outcomes have been underwhelming. A trade-in program aimed at encouraging consumers to replace older vehicles with energy-efficient options has not gained the expected traction. Furthermore, China's efforts to stimulate consumer spending through subsidies for home appliances have shown signs of fatigue.

• Consumer Confidence: Reviving public confidence is crucial for boosting household consumption.
• Property Market Stability: The stabilization of the property market is essential for encouraging private investment.
• Policy Initiatives: Continued support for consumer stimulus measures is in question for 2026.

Chi Lo, a senior market strategist at BNP Paribas Asset Management, emphasizes the importance of the property market's stabilization in reviving public confidence and, consequently, household consumption.

Economic Disparities and Local Business Challenges

While the macroeconomic indicators might seem promising, local businesses are facing increasing difficulties. Small business owners, such as Liu Fengyun, a 53-year-old noodle shop owner in Guizhou province, report that customers are cutting back on spending due to economic uncertainty. Liu's experience reflects a broader sentiment among small enterprises struggling to attract customers.

Many consumers express that financial constraints are influencing their purchasing decisions, with some opting for homemade meals instead of dining out. This shift in consumer behavior is a critical indicator of the underlying challenges within the economy.

Economic Growth Projections for 2026 and Beyond

Looking ahead, various economic analysts have adjusted their growth expectations for China. The Rhodium Group, for instance, suggests that actual growth may be lower than official statistics indicate, forecasting a growth rate between 2.5% and 3% for the following year. This cautious outlook is reflected in the downward trend of official growth targets, which have decreased from an ambitious 6-6.5% range in 2019 to the current target of around 5%.

Deutsche Bank projects that China's economy may only grow by approximately 4.5% in 2026. This anticipated slowdown highlights the need for structural reforms and targeted policies that address both domestic and international economic pressures.

Long-Term Economic Goals and Social Stability

For China's leadership, maintaining a strong and stable economy is paramount for ensuring social stability. While the government may be able to manage social cohesion even amid lower growth rates, the desire for ongoing economic expansion is strong. Analysts suggest that China needs to sustain an annual growth rate of approximately 4-5% to achieve its long-term target of $20,000 GDP per capita by 2035.

This ambitious goal underscores the importance of strategic planning and the implementation of policies that promote sustainable economic growth. The Chinese leadership is aware that, without fostering both economic stability and social confidence, the country's broader development objectives may be at risk.