Our economic outlook for China

China’s economy concluded 2025 on a softer footing, with real GDP growth easing to 4.5% year over year in the fourth quarter, the slowest pace since late 2022. Full‑year growth nonetheless met the government’s target of “around 5%.” Beyond cyclical factors, demographics are adding pressure. The total population declined for a fourth consecutive year. The government has expanded childbirth subsidy programs, but these measures appear insufficient to reverse the downward trend. China’s newborn population fell to 7.92 million in 2025, the lowest number since records began in 1949.

We expect full-year GDP growth to slow to 4.5% in 2026 as China’s two‑speed economy persists, with resilient external performance accompanied by weak domestic demand. External demand is unlikely to remain the same growth engine as it was in 2025, however, given elevated global trade uncertainty. Without a meaningful shift toward a consumption‑driven growth model, domestic demand is likely to remain weak.

Authorities have become increasingly concerned about demand, and a new round of policy support has begun. Fiscal measures—including the frontloading of government spending—have been implemented, while monetary authorities recently introduced targeted rate cuts, increased liquidity quotas for priority sectors, and lowered commercial mortgage down-payment thresholds. However, more policy support will be required to prevent further growth deceleration in 2026. The policy stance will likely remain gradual and targeted. Additional property‑support measures are possible, although a broad, comprehensive rescue package still appears some distance away.

The People’s Bank of China has kept rates and liquidity settings steady, emphasizing that additional easing will be selective. Credit growth is moderating, reflecting payback from earlier fiscal frontloading and softer household demand. We expect only a mild policy rate cut of 20 basis points, to 1.2%, by the end of this year to facilitate fiscal expansion. (A basis point is one-hundredth of a percentage point.)