China: Economic Growth Will Show a Trend of Slowing Down

■ Domestic demand, including consumption and investment, will remain sluggish due to government economic restructuring.  

■ With the widespread adoption of high-tech products and the fading effects of last year's policies, the effectiveness of demand-expansion policies in stimulating the economy will be relatively limited. 

China released several economic indicators on the 19th, thus clarifying the overall economic situation before the end of last year. Real GDP grew by 4.5% year-on-year in the fourth quarter (October-December), falling below 5% for two consecutive quarters; however, driven by relatively high growth in the first half of the year, the nominal annual economic growth rate for 2025 reached 5.0%, achieving the established growth target. However, at the Fourth Plenary Session of the 20th CPC Central Committee in October (releasing the draft outline of the 15th Five-Year Plan) and the Central Economic Work Conference in December (clarifying the direction of this year's economic policy), the quantitative targets such as the economic growth rate, which are customarily proposed in previous years, were shelved. Based on this, it is speculated that the Chinese government is weighing the extent to which it can tolerate a slowdown in economic growth before the National People's Congress convenes in March this year. 

Looking at the monthly data from December last year, the growth rates of industrial added value (up 5.2% year-on-year), exports (up 6.6% year-on-year), and the service sector production index (up 5.0% year-on-year) all accelerated, achieving growth of over 5%. However, at the same time, the total retail sales of consumer goods (up 0.9% year-on-year) slowed for the seventh consecutive month, and the decline in fixed asset investment (excluding rural areas, down 3.8% year-to-date) further widened. With the increase in the production of computers, communication, and other electronic equipment, and the substantial growth in integrated circuit (IC) exports, coupled with the agreement reached at the end of October last year to reduce tariffs on Chinese goods by 10%, the production and trade activities of high-tech products have shown some recovery. On the other hand, economic activities related to domestic demand (such as consumption and investment) have further deteriorated. In terms of retail, due to the fading effects of policy support in the previous year, categories such as home appliances, audio-visual equipment, and automobiles have declined; in terms of investment, the three major sectors of manufacturing, infrastructure construction, and real estate development have all shown a downward trend. Against the backdrop of the Chinese government's "anti-innovation" policy, structural adjustments are being promoted by correcting excessive competition and reducing excess capital stock. Compared to the stagnation of trade with the US caused by Sino-US confrontation, the government's decisive promotion of economic structural reforms is the main reason for the sluggish domestic economic activity. 

The Central Economic Work Conference listed expanding domestic demand as its top priority for this year, and the upcoming 15th Five-Year Plan also explicitly proposes further promoting structural reforms, such as "high-quality development." Although theoretically, related policies can be implemented concurrently due to different timeframes, targeted demand stimulus in cutting-edge sectors, with advanced products already widely available, is unlikely to replicate last year's multiplier effect. Furthermore, the effects of previous policies are fading, so the pace of consumption expansion is expected to be relatively moderate. Regarding the sluggish real estate market, which requires stronger policy intervention, it is currently positioned as a risk management issue, with specific measures limited to converting existing housing stock into affordable housing. Overall, economic growth is expected to show a trend of slowing down, and policy support will primarily serve to regulate the pace of this slowdown.