BEIJING, Jan 19 (Reuters) – China’s economy grew 5.0% last year, meeting the government’s target by seizing a record share of global demand for goods to offset weak domestic consumption, a strategy that blunted the impact of U.S. tariffs but is increasingly hard to sustain.
Since its property sector crash in 2021, Beijing has guided resources towards the industrial complex rather than consumers to meet ambitious growth targets, creating endemic production overcapacity and forcing factories to look for buyers abroad.
Last year, China’s inroads into global markets went further than ever before, leading to a record trade surplus of $1.2 trillion, 20% higher than in 2024 and equivalent to the size of a top 20 economy, such as Saudi Arabia.
While shipments to the U.S. fell by a fifth, they rose sharply to the rest of the world as producers conquered new markets to insulate themselves from U.S. President Donald Trump’s aggressive tariff policies to counter Beijing’s challenge to American hegemony.
“We’re doing well in Europe and Latin America and we don’t need that market,” said Dave Fong, who co-owns three factories in southern China making everything from school bags to climbing gear and industrial machinery. About 15% of his orders used to come from the U.S., but that’s now down to a trickle.
CHINA’S DOMESTIC ECONOMY ENTERS ‘COLD WINTER’
But the success of China’s export-oriented manufacturers contrasts with persistent weakness in the domestic-focused parts of the economy. Monday’s data underscored that divergence: industrial output rose 5.9% in 2025, outpacing retail sales’ 3.7% growth, while property investment slumped by 17.2%.
And unless Beijing is able to redirect resources towards consumers and lift the sectors depending on Chinese spending at home, future economic growth risks slowing sharply, analysts say. While China is expected to target a roughly 5% pace again this year, a Reuters poll predicted 2026 growth at 4.5%.
Relying on exports for growth in the longer run is hardly an option. If China’s trade surplus were to grow every year at the same rate it did in 2025, it would match the size of France’s roughly $3 trillion economy in 2030 and Germany’s $5 trillion output in 2033, Reuters calculations show.
“It’s hard to imagine how the trade surplus could continue to expand at this clip indefinitely into the future, if only because that would incur a wider protectionist backlash abroad,” said Christopher Beddor, economist at Gavekal Dragonomics.
The economy grew 4.5% in the fourth quarter from a year earlier, beating analysts’ expectations slightly but slowing to a three-year low from the third-quarter’s 4.8% pace, as consumption and investment dragged.
China’s economic development in 2025 was “hard-won”, said Kang Yi, the NBS head on Monday, acknowledging the economy faces problems and challenges including strong supply and weak demand.
Fixed-asset investment shrank 3.8% in 2025, the first annual drop since data became available in 1996 – a sign that local governments are under pressure to reduce debt rather than build new roads and bridges, their usual growth playbook.
Private investment also fell 6.4% as businesses see little reason to expand in an economy marred by overcapacity, where households prefer to save rather than spend.
Scott Yang, who owns a factory making pipe-fitting valves used in real estate and infrastructure projects in eastern China, feels the domestic strains first-hand.
“If real estate is doing poorly, the impact on our whole industry is very large. Same for infrastructure,” Yang said.
“It’s hard to quantify, but qualitatively this winter feels piercingly cold.”
Yang said he felt he had no solutions, especially without funds to upgrade the factory’s products: “If our profits in the past few years weren’t very good, where would the investment come from?”
BEIJING FACES PRESSURE TO STIMULATE DEMAND
To help small businesses like Yang and ease credit access across the economy, the central bank announced on Thursday a targeted monetary policy easing package, including a new 1 trillion yuan ($144 billion) programme for private enterprises.
But analysts say credit supply has been ample for years and demand is the missing piece.
Beijing’s demand-side policies so far include incremental annual increases on minimum pensions and other welfare items, such as childcare or tuition support – which are also aimed at arresting a demographic decline. Data on Monday showed China’s population fell for a fourth straight year.
A consumer goods subsidy scheme from last year was extended into 2026.
These policies provide insufficient support, analysts say.
“Unless policy pivots more decisively towards households and consumption, growth is likely in the low-4s to mid-4s” in 2026, said Charu Chanana, chief investment strategist at Saxo in Singapore.
Carol Zhang, 36, lost a lucrative job at a tech company a few years ago and only recently found stable employment in e-commerce.
Zhang says the way China pushed back against Trump last year made her “reasonably optimistic” as the economy will cope if trade tensions flared up again. But she remains cautious when it comes to her own outlook.
“When I had more money working in tech I would buy something that was 2,000 yuan, no problem,” she said. “Now I still buy things, but they’re 20 yuan.”
(Reporting by Kevin Yao and Ellen Zhang in Beijing; David Kirton in Shenzhen; Casey Hall and Gu Li in Shanghai; Graphics by Kripa Jayaram;Editing by Marius Zaharia and Shri Navaratnam)
