China’s economy achieved its official growth target of 5% in 2025, according to official GDP figures, but this headline accomplishment conceals significant underlying vulnerabilities. While exports surged to a record-breaking $1.2 trillion trade surplus despite ongoing trade tensions with the United States, the economy faces mounting domestic challenges that threaten sustainable growth.
The export sector’s remarkable performance, driven by successful diversification to Southeast Asian, South American, European, and African markets, offset concerning weaknesses in domestic consumption. December retail sales grew at a meager 0.9% year-on-year—the slowest pace since late 2022—highlighting persistent consumer reluctance to spend. This consumption weakness appears structural rather than temporary, rooted in high savings rates, property market uncertainties, and concerns about job security.
Simultaneously, China confronts demographic headwinds as its population declined for the fourth consecutive year in 2025, with birth rates hitting record lows. This accelerating aging population presents long-term economic challenges that require substantial productivity gains to overcome.
Fiscal constraints further complicate the economic landscape. Local governments face mounting debt burdens, reduced revenues from land sales, and increasing social program obligations, limiting their capacity for stimulus spending. Investment in fixed assets declined by 3.8% in 2025, with property investment plummeting approximately 17%.
The fundamental challenge lies in redirecting China’s substantial national savings—which reached 43.4% of GDP in 2024—toward productive domestic investment rather than export surpluses that fuel international trade tensions. The transition toward a more capital- and knowledge-intensive growth model, particularly in technology services and high-value manufacturing, appears essential for navigating these structural challenges.