China’s export-led growth powered the economy past higher global trade barriers in 2025, but the strategy is increasingly exposing structural weaknesses at home. While surging overseas shipments helped China meet its official growth target, consumers remain cautious, the property sector continues to deteriorate, and deflationary pressures are intensifying.
The scale of China’s export performance last year was unprecedented. The country’s trade surplus surged 20 percent to $1.19 trillion, the largest ever recorded globally. Exports rose 5.5 percent and contributed roughly one third of overall economic growth, the highest share since the late 1990s. Shipments expanded rapidly to the European Union, Africa, Latin America, and Southeast Asia, helping offset the impact of higher US tariffs.
Yet this reliance on China’s export-led growth is masking weakening domestic demand. Imports were largely flat throughout the year, reflecting sluggish consumption and Beijing’s continued push for self-sufficiency. While headline GDP growth reached 5 percent, momentum slowed noticeably toward year-end, raising questions about the durability of the recovery.
Strong trade numbers, softening economic momentum
Economic data show a clear divergence between export strength and internal weakness. GDP growth eased to 4.5 percent year on year in the fourth quarter, down from 4.8 percent in the third. Retail sales growth slowed sharply, rising just 0.9 percent in December after posting far stronger gains earlier in the year.
Investment trends were even more concerning. Fixed-asset investment swung into a steep decline late in 2025, falling 15 percent in December after strong growth earlier in the year. On an annual basis, fixed-asset investment recorded its first drop in nearly three decades, highlighting how deeply the property downturn is weighing on the broader economy.
The collapse in real estate investment has been severe. Property-related spending fell more than 17 percent last year, overwhelming gains from government-backed investment in advanced manufacturing, artificial intelligence, electric vehicles, and robotics.
Property downturn continues to drag on confidence
More than four years after China’s housing bubble began to deflate, the sector remains under intense strain. An estimated 80 million homes are unsold or vacant, continuing to pressure prices, construction activity, and developer balance sheets.
Real estate once accounted for roughly a quarter of China’s economic output and employed about 15 percent of the nonfarm workforce. Its contraction has eroded household wealth, as housing represents the primary store of savings for many families. Analysts estimate that around 85 percent of price gains accumulated before 2021 have been wiped out.
The result has been a sharp decline in consumer confidence. Households are saving rather than spending, while businesses are cutting wages, jobs, and prices to stay afloat. This feedback loop has reinforced deflationary conditions across the economy.
Deflation deepens as growth model strains
Consumer prices have remained flat, while producer prices continue to fall. China has now experienced economy-wide deflation for three consecutive years, its longest stretch since transitioning toward a market-based system in the late 1970s. Excess industrial capacity and policies that favor manufacturing over household income growth have amplified downward price pressures.
The property downturn has also strained banks and local governments. Efforts to prevent widespread developer bankruptcies have left behind heavily indebted firms and mounting financial risks, complicating the task of restoring sustainable growth.
Looking ahead, ratings agencies and economists expect further cooling. Fitch Ratings projects GDP growth will slow to just over 4 percent in 2026, citing weak domestic demand, low confidence, deflation, and debt burdens that extend beyond real estate.
Is export-led growth running out of room?
Economists have long urged China to pivot away from export- and investment-driven expansion toward a consumer-led model. Despite official rhetoric, last year’s data suggest policymakers remain reluctant to make that transition.
With domestic demand subdued, factories have little choice but to push more goods overseas. However, trade tensions are rising. The European Union, India, Indonesia, and other economies have already imposed targeted tariffs on certain Chinese products, raising the risk that future export growth will face new barriers.
As the world’s second-largest economy, China may find it increasingly difficult to rely on exports as a primary growth engine. Continued dependence on China’s export-led growth risks fueling global trade friction while leaving unresolved the deeper issues of weak consumption, financial stress, and declining confidence at home.
