By Matija Šerić
In January, it was reported that China’s economy grew last year. The country’s Gross Domestic Product (GDP) rose by exactly 5% compared to 2024. By sector, industrial production increased by 5.9% in 2025, surpassing retail growth of 3.7%, while real estate investment fell sharply by 17.2%. Industry remains the strongest component of the People’s Republic of China’s economy. More specifically, high-tech manufacturing (industrial robots, 3D printing equipment, and electric vehicles) recorded growth of over 9%.
Record Exports
The government in Beijing achieved its set goal for Chinese goods to capture a record share of global merchandise trade (15%), compensating for weak domestic consumption. While shipments to the U.S. fell by one-fifth, exports to the rest of the world rose strongly. Why? Because Chinese producers were capturing new major markets (India, Central Asia, the Gulf, Africa, South America) to shield themselves from Donald Trump’s aggressive tariff policies. This deliberate trade strategy mitigated the effects of Trump’s tariffs but is difficult to sustain in the long run.
Expansion into Foreign Markets
Last year, China deepened its penetration of global markets more than ever, resulting in a record trade surplus of $1.2 trillion – 20% higher than in 2024. China’s trade surplus is comparable in size to the economy of the Netherlands, ranked 18th in the world. If the surplus continues to grow at the same pace as in 2025, it could reach the size of France’s economy (around $3 trillion) by 2030, and just three years later, rival Germany’s GDP of $5 trillion, demonstrating China’s enormous global influence. Although Chinese policymakers announced the successful conclusion of their 14th Five-Year Development Plan (2021–2025), many questions remain open.
Real Estate Sector – The Main Source of Domestic Problems
Since the real estate sector entered a crisis in 2021 from which it has yet to recover (overleveraged property developers, government regulations, overbuilding, demographic fluctuations), Beijing has gradually redirected resources toward industry rather than consumers, while attempting to maintain ambitious growth targets. This pragmatic approach has led to excess production capacity, causing factories to increasingly look for customers outside the domestic market.
Prognosis for Chinese economy in 2026
High Local Debt, Falling Private Investment, and Household Savings
Fixed-asset investment fell by 3.8% in 2025, marking the first annual decline since data have been available from 1996. This indicates that local authorities are under increasing pressure to reduce debt, forcing them to adapt traditional growth-stimulating measures rather than simply building new roads and bridges. Private investment also fell by 6.4%, as companies see little incentive to expand in an economy burdened with excess capacity, while households prefer to save rather than spend. To assist small businesses, the People’s Bank of China (central bank) announced in mid-January a targeted monetary easing (interest rate cuts). A new program worth 1 trillion yuan ($144 billion) was also launched to support private companies.
Key Tasks for 2026
If Beijing fails to direct resources toward domestic consumers and revive sectors dependent on domestic demand, future economic growth could be at risk. Nevertheless, expectations predict China’s GDP growth at around 5% this year as well. As China enters the first year of its 15th Five-Year Development Plan, the focus of state economic policy is expected to be on stabilizing projected growth, stimulating domestic demand, modernizing industry, and reducing structural risks, particularly in the real estate and local finance sectors.
Major Challenges for the Architects of “Socialism with Chinese Characteristics”
In other words, for China’s economy to continue advancing in 2026, the government needs to provide tax relief, offer subsidies, ease access to credit, and promote sectors such as high-tech manufacturing and energy, thereby stimulating consumption and economic growth. Stronger oversight of local government debt and financial obligations is also necessary, along with measures to stabilize the real estate market and prevent overleveraging of construction companies. None of this will be easy, but the Chinese are economic experts who have consistently overcome challenges.
