China's Economic Tightrope: Growth vs. Demographic Decline and Trade Challenges

China’s economy has officially grown by 5% last year, achieving Beijing’s target amidst a record trade surplus despite facing significant obstacles like a slowing growth rate of 4.5% in the last quarter of 2025. The report highlighted a ”two-speed economy”, where robust manufacturing and exports are buffeting overall growth, while domestic spending remains cautious due to ongoing struggles such as a property crisis and the repercussions of US tariffs.

Analysts express skepticism about the official growth figures, suggesting that the real growth could be overestimated by around 1.5 percentage points, particularly given the sluggish investment and consumer spending. Concurrently, China’s demographic challenges were laid bare as the birth rate plummeted to its lowest since 1949, with a drop to 7.9 million births, signaling impending complications for consumer demand and the already troubled real estate sector.

In 2025, China’s population suffered a decline for the fourth consecutive year, dropping by 3.4 million to about 1.4 billion citizens. This demographic shift is pressing as the government attempts to incentivize higher birth rates. Despite these issues, the nation celebrated a record trade surplus of $1.19 trillion, largely swayed by exports outside of the US, though this growth strategy could be unsustainable as the repeated cuts in prices to maintain volume could erode profits.

China’s National Bureau of Statistics head acknowledged the country’s economic challenges, emphasizing weak domestic demand amid strong supply. The ongoing trade tensions with the US pose a risk to China’s reliance on exports, especially after recent threats of new tariffs from President Trump targeting nations engaging with Iran.

On the domestic front, the property market remains shaky, with real estate investments plunging by 17.2% last year, continuing a downward trend in housing prices that dropped by 2.7% in December. The once-reliable sector is now seen as a hotspot of vulnerability for households suffering from unfinished homes, loss of wealth, and diminishing consumer confidence.

Though retail sales growth reached a mere 0.9% in December—the slowest in three years—factory output grew by 5.2%, surpassing previous month’s performance. Following the successful attainment of the 5% growth target, regulatory bodies have held back on immediate stimulus, signaling a strategy to reserve economic resources for the upcoming year.

As China navigates its critical balancing act this year, policymakers aim to stimulate growth without escalating debt levels and to reduce dependence on exports amid increasingly intricate global trade challenges.