China closed 2025 with headline GDP growth of 5% and a nominal milestone: the economy surpassed 140 trillion yuan for the first time. On the face of it, the outcome met official targets and underlined the country's continued role as a major engine of global growth, with per‑capita income rising to about $13,953 and R&D spending intensity climbing to 2.8% of GDP.
Beneath the aggregate numbers, however, the recovery looked decidedly uneven. Policymakers and economists described a “K‑shaped” pattern: high‑end manufacturing and high‑technology sectors — equipment manufacturing, AI‑linked industries, biopharma, industrial robotics and new energy vehicles — expanded strongly, while many parts of the domestic economy, notably fixed investment and parts of household consumption, lagged.
Industrial production and innovation data supply the bright spots. Industrial value added for large firms rose 5.9% year‑on‑year, while output of 3D printers, industrial robots and new energy vehicles surged by more than 25–50% in 2025. China’s innovation rankings improved too; for the first time the country entered the global top ten on the World Intellectual Property Organization’s innovation index.
Consumption remained the stabiliser but showed signs of strain. Retail sales crossed 50 trillion yuan and final consumption contributed 52% of growth, yet monthly retail growth slid steadily after May and fell to 0.9% in December. Fixed‑asset investment contracted by 3.8% for the year, underscoring a persistent weakness on the demand side.
A persistent deflationary signal complicated the picture: the GDP deflator was negative for the eleventh consecutive quarter. Quarterly GDP growth slowed through the year from 5.4% in Q1 to 4.5% in Q4, prompting official and independent warnings that headline success masks underlying momentum loss and rising downside risks.
Policy was both a prop and a crutch. Fiscal front‑loading, faster bond issuance and earlier transfer payments helped secure an opening‑of‑year credit “red” and supported higher growth in the first half, but analysts stress that the economy remains dependent on policy to manage the new‑old economic transition and to resolve legacy debt issues.
Looking forward, Beijing has set a strategic benchmark: by 2035 China aims to reach the per‑capita income of a “medium‑developed” country — frequently interpreted by market participants as roughly $20,000 per capita. To hit that mark, several analysts argue China needs growth near 4.5% per year through 2026–2035, a path that will test the country’s ability to raise productivity, rebalance demand toward households, and limit financial vulnerabilities.
Voices inside the policy community are split on how to square short‑term stabilization with long‑term reform. Some call for large‑scale public investment to arrest the recent weakening of demand, arguing fiscal endurance and targeted transfers are necessary to revive consumption. Others urge redistributional measures—taxes, subsidies and stronger social protection—to put more income into middle and low earners’ hands, which would better sustain consumption without revving credit and public debt.
For global markets, China’s 2025 performance is consequential and double‑edged. Continued industrial strength and sizeable external demand support supply chains and commodity markets, but the slowdown in domestic investment and the emergence of deflationary pressure raise questions about the durability of external demand as the principal growth engine. How Beijing balances stimulus, structural reform and financial stability in 2026 will shape both China’s medium‑term trajectory and the wider global recovery.