China’s economy reached its official growth target in 2025 by leaning heavily on an export surge that masked persistent weakness at home, underscoring a structural imbalance that Beijing has yet to resolve. While headline growth delivered reassurance to policymakers, the composition of that expansion revealed a widening divide between globally competitive manufacturers and a domestic economy still weighed down by property losses, cautious consumers, and shrinking private investment. The result is an economy that met its numerical objective but remains internally strained.

At 5.0%, overall growth matched the government’s stated goal, but it was achieved less through a broad-based recovery than through an extraordinary capture of global goods demand. China’s exporters expanded their footprint across Europe, Latin America, Southeast Asia and parts of the Global South, compensating for weaker shipments to the United States and offsetting the drag from domestic sectors struggling to regain momentum after years of adjustment.

Export strength fills the growth gap

China’s export performance in 2025 reflected both necessity and design. Since the property sector downturn that began in 2021, policymakers have prioritised industrial output and manufacturing scale over direct household stimulus. Capital, credit and policy support were channelled toward factories, logistics networks and advanced manufacturing, reinforcing China’s position as the world’s dominant supplier of goods.

That strategy paid off in the external accounts. China recorded a trade surplus of unprecedented scale, effectively exporting its way to the growth target as domestic spending faltered. Even as shipments to the United States fell sharply under the weight of tariffs and geopolitical tension, exporters rapidly diversified their markets, deepening ties with regions less inclined to impose barriers.

The redirection of trade flows softened the impact of tariffs introduced under **Donald Trump**, whose trade policies were explicitly aimed at curbing China’s industrial ascent. Instead of retreating, Chinese producers absorbed margin pressure, adjusted pricing and expanded distribution channels, reinforcing their global presence at a time when many competitors were constrained by higher costs and weaker supply chains.

Overcapacity as both strength and vulnerability

The export boom has been enabled by China’s vast industrial capacity, but that same capacity highlights the economy’s internal imbalance. Years of investment-led growth have left many sectors producing far more than domestic demand can absorb. Rather than curbing output, factories have sought buyers abroad, intensifying competition in global markets.

This dynamic has allowed China to sustain growth in the short term, but it carries longer-term risks. Persistent overcapacity depresses prices, squeezes profits, and discourages private investment at home. It also raises the likelihood of protectionist responses overseas as trade partners confront surging imports and widening deficits.

Economists caution that the pace at which China’s trade surplus expanded in 2025 cannot be replicated indefinitely without provoking a stronger backlash. The very success of exporters risks hardening resistance in key markets, limiting the durability of export-led growth as a substitute for domestic demand.

A domestic economy stuck in winter

Behind the export strength lies a domestic economy still in what many describe as a prolonged chill. Official data point to a stark divergence: industrial output grew close to 6%, while retail sales expanded at a far slower pace. Property investment continued to contract sharply, reflecting both structural correction and weak buyer confidence.

Real estate’s downturn has had cascading effects. Construction, local government finance, and industries tied to housing have all been hit, undermining employment prospects and income growth. Infrastructure spending, long a fallback for stimulating activity, has been constrained by debt pressures on local authorities, leaving fewer levers to pull.

Private investment has also retreated, a sign that businesses see limited opportunity in expanding capacity for a market already characterised by excess supply. Without stronger consumption, firms are reluctant to commit capital, reinforcing a cycle of caution that keeps domestic demand subdued.

Consumers remain defensive

Household behaviour sits at the centre of China’s domestic weakness. After years of uncertainty—ranging from pandemic disruptions to property losses and labour market stress—consumers have become markedly more cautious. Savings rates remain elevated, discretionary spending restrained, and big-ticket purchases postponed.

This shift is not merely cyclical. Demographic pressures, including a shrinking population and an ageing workforce, have amplified concerns about future income security. Younger workers face more volatile employment, while older households are wary of drawing down savings in an environment where asset values, particularly property, have fallen.

Incremental policy measures aimed at boosting consumption—such as modest increases in pensions, subsidies for consumer goods, and targeted welfare support—have provided some relief but have not fundamentally altered behaviour. Without a stronger sense of income growth and security, households continue to prioritise caution over consumption.

Policy bias toward supply over demand

Beijing’s policy response in 2025 reflected a continued preference for supply-side support. Targeted monetary easing and credit programmes were designed to help businesses weather weak demand and maintain production. While credit availability has been ample, uptake has been limited by a lack of profitable investment opportunities.

This highlights a core challenge: the constraint on growth is not access to finance, but insufficient demand. Analysts argue that without a more decisive shift toward households—through stronger income support, social safety nets, and measures to reduce precautionary saving—the domestic economy will struggle to regain balance.

The emphasis on industrial resilience has strategic logic, particularly in a world of geopolitical competition and fragmented trade. However, it also postpones the adjustment needed to place consumption at the centre of growth, increasing reliance on exports to fill the gap.

Regional and global implications

China’s export-led success in 2025 has had significant spillovers. For trading partners, surging Chinese shipments have intensified competition, benefiting consumers through lower prices but challenging domestic producers. In emerging markets, Chinese goods have supported infrastructure development and consumer access, reinforcing China’s role as a key economic partner.

In advanced economies, however, the scale of China’s surplus has sharpened debates over trade defence and industrial policy. Governments facing political pressure to protect domestic industries may be less willing to absorb continued import growth, raising the risk that trade friction re-emerges as a more binding constraint.

For China, this environment underscores the limits of relying on external demand. While diversification has reduced dependence on any single market, the global system can absorb only so much surplus without adjustment.

Growth achieved, balance deferred

China’s ability to hit its 2025 growth target demonstrates the resilience and adaptability of its industrial base. Exporters have proven capable of navigating tariffs, redirecting trade, and scaling production even in a more hostile global environment. That achievement, however, comes with a trade-off: deeper domestic imbalances that remain unresolved.

The contrast between booming factories and subdued households points to an economy running on two speeds. One is outward-facing, competitive and expansionary; the other inward-looking, cautious and constrained. Bridging that divide will require a policy pivot that places consumers at the heart of growth rather than treating them as a residual beneficiary of industrial success.

As China looks beyond 2025, the challenge is less about hitting another numerical target and more about changing the composition of growth. Without stronger domestic demand, export strength can sustain momentum for only so long before external limits and internal fatigue assert themselves.

(Adapted from Investing.com)