China’s growth between external momentum and internal challenges: 2025 results and challenges for 2026.

Translated by Jennifer Di Giacomo

According to estimates released by China’s National Bureau of Statistics, Chinese GDP in 2025 met the annual targets set by the government: starting from 5.4% in the first quarter, the growth rate slowed to 4.5% in the final quarter, resulting in an average annual growth of 5.0%. Many experts, however, remain skeptical about the reliability and accuracy of China’s official estimates. Capital Economics, for example, warns that the latest data may be overstated by at least 1.5 %, suggesting instead economic growth of around 3.5%. Regardless of these warnings, it is difficult to deny Beijing’s resilience, as it has managed to maintain a positive trend despite the trade war with Washington.

Not only has China managed to withstand Trump’s trade tariffs, it has even recorded a record trade surplus of USD 12 trillion, 20% higher than the previous year. This was mainly made possible by several factors. First, China took advantage of U.S. tariffs imposed on other countries to expand its trade into markets, including non-traditional ones, such as Europe, Latin America, and other emerging economies. Trade with partner economies along the Belt and Road accounted for 51.9% of total trade. This allowed China to offset the substantial decline in exports to the United States, which fell by one fifth compared to 2024. These same countries have an interest in purchasing from the world’s second-largest economy, given its dominance in critical materials such as rare earths. Finally, Chinese exports have also been boosted by increased sales of high-tech products, which are increasingly in demand globally. Evidence of China’s growing competitiveness in the technology sector can be seen in the fact that exports of Chinese-made high-tech goods rose by 13.2% this year.

The 5% target was achieved not only in a challenging international environment, but also despite structural problems within the Chinese economy. Among the main difficulties worrying Beijing’s leadership are the crisis in the real estate sector, deflation, and youth unemployment. Added to these is the weakness of domestic demand. Although domestic consumption has increased modestly, with retail sales up by 3.7%, this sector has yet to emerge as a true engine of growth. Chinese households spend on average less than 40% of annual economic output, 20% less than the global average, a notably low figure considering China’s income level.

President Xi Jinping himself, during his speech at the Conference of the Central Committee of the Chinese Communist Party on Economic Work held in Beijing from December 10th to 11th, stated that while 2025 was an “extraordinary year” economically, China still faces unresolved problems and new challenges. In addition to the constant attention paid to an international environment that is both challenging and continually evolving, Beijing is aware of its excess production capacity and acknowledges the contradictions between supply and demand within the country. Building a strong domestic market therefore remains among the Party’s priorities for 2026. Policies to stimulate domestic demand are already in place, including annual increases in minimum pensions and support for childcare and education. The incentive program for replacing household appliances and other consumer goods, launched in 2024 with the aim of significantly increasing the weight of household consumption in the economy and expanding equipment upgrading programs, has also been extended through 2026. While important, these measures are still insufficient to resolve the structural problems of the Chinese economy, as some analysts suggest.

The country’s future growth will certainly depend on its ability to redirect resources toward consumers and encourage purchases and investment; the external sector will not be able to continue compensating for internal weakness. For 2026, the government’s target, which will be set in March at the meeting of the National People’s Congress, will likely be around 5% GDP growth, while forecasts instead point to growth of 4.5%.

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