China officially met its long-standing growth goal in 2025, delivering an expansion of “around 5%” and allowing Beijing to declare a measure of economic success after years of disruption from the pandemic and a prolonged property downturn. Yet beneath the headline number, the data tell a more fragile story—one marked by slowing momentum, weak household demand, and growing questions about how durable the recovery really is.

Growth Target Achieved, Momentum Fades

Government data released Monday showed that economic growth slowed to 4.5% year-on-year in the final quarter of 2025, the weakest pace since late 2022. That marked a notable deceleration from the 4.8% recorded in the prior quarter and underscored a loss of momentum heading into 2026. On a quarterly basis, output expanded by just 1.2% between October and December.

While the full-year figure met policymakers’ expectations, the trajectory matters more for markets. China has now posted progressively slower quarterly growth even as headline annual targets have been lowered over time—from 6%–6.5% in 2019 to around 5% today—suggesting structural headwinds are becoming harder to offset.

Exports Carry the Load

Exports once again proved decisive. Strong overseas shipments helped China generate a record trade surplus of roughly $1.2 trillion, cushioning the drag from sluggish consumer spending and cautious business investment. This export strength came despite renewed tariffs imposed by U.S. President Donald Trump, whose return to office weighed heavily on bilateral trade.

Exports to the United States fell by about 20% last year, but that decline was offset by stronger demand from other regions. This reorientation has allowed China to keep factories running, but it has also triggered pushback. Several countries are now considering higher tariffs or trade defenses to protect local industries from surging Chinese imports, raising the risk that this export-led buffer may weaken.

Domestic Demand Remains the Weak Link

At home, conditions look far less robust. Consumer confidence remains fragile, weighed down by job insecurity, high household debt, and lingering stress in the property market. Government trade-in programs for cars and household appliances initially provided a lift but have lost traction in recent months.

Property stabilization—not a full recovery—remains critical. Economists argue that without a clearer turnaround in real estate, households are unlikely to loosen their purse strings. For small businesses, the slowdown is already tangible. Many report declining foot traffic and heightened price sensitivity among customers, reinforcing the sense that the recovery has yet to reach the grassroots economy.

Looking Ahead to 2026

Beijing has pledged to keep supporting consumption and continue investing in strategic areas such as artificial intelligence and advanced manufacturing. However, expectations for growth are moderating. Deutsche Bank forecasts expansion of around 4.5% in 2026, while some independent analysts believe last year’s true growth rate may have been significantly lower than official figures.

The challenge for policymakers is no longer just hitting targets, but restoring confidence—among consumers, entrepreneurs, and global trading partners alike.