Late last month, Xi Jinping described 2025 as an “extraordinary” year for China economically. It was a debatable characterization.
Certainly, China’s trade surplus was “extraordinary,” clocking in at a record $1.2 trillion. Other than that, though, the world’s second-largest economy struggled.
Monday’s sweeping update from Xi’s apparatchik statisticians showed real growth in Q4 was a mere 4.5%. That was the slowest since Q4 of 2022 when the Party, facing the terrifying prospect of street protests against an anachronistic approach to managing the pandemic, abandoned COVID containment protocols virtually overnight.
But the real red flag — no pun intended — was again the deflator, which spent an 11th consecutive quarter in negative territory. Nominal growth was just 3.8% in Q4.
So, China’s now spent three years in deflation. For the full year, real growth was 5%, which is to say right on the Party’s target (convenient, I know). Nominal growth for all of 2025 was 4%.
To reiterate, 2025 wasn’t a good news story for the Party on the economic front. The activity data breakout for December showed retail sales rose less than 1% YoY last month, a result that would’ve been unthinkable pre-pandemic.
The figure below shows you what I mean. Prior to COVID, retail sales growth averaged just over 8.5%.
While you can explain away the declines (see the chart annotations) and the post-pandemic volatility (the series oscillates wildly as it laps distorted prior year comps), what you can’t so easily look past is the steady diminishment over the course of 2025 (white arrow).
That ongoing deceleration played out alongside proliferating evidence of disinflation, mitigated only by undesirable increases in food prices and a distortion from a CPI category that picks up the precious metals rally.
The final tally for fixed-asset investment in 2025 showed a 3.8% decline. Regular readers will note that this metric — it’s tallied on a cumulative, YTD basis each month — has tipped a drop since September. It’s never recorded an annual decline until now.
The breakdown showed property investment plunged 17% in 2025 from 2024.
It’s impossible to sugarcoat that, and I didn’t see anyone try on Monday, even as there were the usual allusions to the virtues of deleveraging and sorting out opaque local government balance sheets.
Of course, the headlines that garnered the most attention related to the ongoing decline in the Chinese population, which, hyperbolically or not, is advertised by foreign media as a full-on demographic crisis.
Coming quickly full circle, it’s hard to see how 2025 counted as anything other than a very bad year for China economically with the lonely exception of exports which, as Bloomberg was keen to point out, comprised nearly a third of the overall growth impulse, the most in 28 years.
