Our economic outlook for China
November 11, 2025
A challenging 2035 target amid declining trend growth
“The 2035 modernization objective set in China’s 15th five-year plan, which aims to raise GDP per capita to the level of moderately developed countries, is challenging. Achieving this goal implies compound annual growth of 6% to 8% in U.S. dollar terms, necessitating robust nominal GDP growth and a stable or appreciating renminbi over the next decade.”
Grant Feng,
Vanguard Senior Economist
While China’s third-quarter real GDP growth remained firm, nominal GDP growth slowed to 3.7% year over year, down from 3.9% in the second quarter and its lowest level since the fourth quarter of 2022. Still, China’s full-year growth target appears largely on track, given that real GDP grew by 5.2% year over year during the first three quarters and exports remain resilient.
But structural challenges, especially a soft labor market, a prolonged property downturn, and fragile private sector sentiment, remain significant and will require incremental and targeted support to counteract. Policymakers have tapped fiscal space to support investment. Such steps should be able to help stabilize domestic demand in the fourth quarter and early in 2026, albeit modestly.
A trade truce with the U.S. scaled back China’s effective tariff rate from 42% to 32%, which should support China’s near-term export growth. The truce also reduces policy uncertainty, potentially encouraging corporate capital expenditures. Planned high-level visits signal a mutual willingness to compromise, reducing the likelihood of poor trade outcomes in the near term. However, the risk of renewed trade tensions cannot be ruled out.
Broad-based policy stimulus is unlikely in the near term. We expect only modest cuts from the current 1.4% monetary policy rate to facilitate fiscal expansion.
China economic forecasts
Notes: GDP growth is defined as the annual change in real (inflation-adjusted) GDP in the forecast year compared with the previous year. Unemployment rate is as of December for each year. Core inflation is the year-over-year change in the Consumer Price Index, excluding volatile food and energy prices, as of December for each year. Monetary policy is the People’s Bank of China’s seven-day reverse repo rate at year-end.
Source: Vanguard.
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