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China Economic Review – November 2025
A Fragile Recovery Under Pressure From Property Stress and Weak Credit
China closed in November 2025, facing an increasingly fragile economic landscape. The earlier signs of stabilisation now appear uneven and tentative. Domestic demand remains soft, momentum in industry is fading, and the property downturn continues to exert significant pressure on household confidence and financial stability. Meanwhile, credit growth has weakened sharply, revealing a lack of appetite for borrowing across households, private companies, and regional financing platforms.
Despite these weaknesses, China still benefits from strong external buffers. Its large trade surplus, sizeable foreign-exchange reserves, cheaper imported energy, and a more constructive diplomatic tone with the United States have helped prevent a sharper downturn. Policymakers remain supportive but cautious, constrained by currency-stability priorities, financial-risk concerns, and scepticism from foreign capital.
1. Growth and Activity – Momentum Continues to Slow
Economic activity slowed notably through October, marking a loss of pace across both manufacturing and consumption. Industrial production grew 4.9% year-on-year, undershooting expectations of 5.5%, and falling from 6.5% previously. Year-to-date output growth eased to 6.1%, a sign that the earlier recovery driven by high-tech and green-energy sectors is fading.
The demand side reflected the same pattern. Retail sales rose just 2.9% y/y, slightly above forecasts but weaker than the previous month’s 3.0%, while year-to-date growth slipped to 3.31%. Household caution remains evident across big-ticket items including autos, household appliances, and non-essential services—indicating that stimulus measures have yet to meaningfully translate into spending momentum.
Survey data painted a mixed but still moderately expansionary picture. The Caixin PMI readings for October stood at 50.6 for manufacturing and 52.6 for services, suggesting that private-sector activity is still growing—though at a slower and more vulnerable pace.
Overall takeaway: The economy is still expanding, but the momentum is narrower and softer. Services remain the main growth engine, while manufacturing and consumption exhibit clear fatigue.
2. Industrial Profits and Investment – Margins Under Pressure, Capex Retreating
Corporate profitability and investment—critical for sustainable medium-term growth—continued to weaken. Industrial profits grew only 1.9% year-to-date, down from 3.2%, pointing to margin pressure as weaker demand and falling prices weigh on earnings.
Investment trends were even more concerning. Fixed-asset investment declined 1.7% y/y, one of the weakest readings of the year. The drivers are clear:
- Continued distress in the property sector
- Reduced infrastructure spending by debt-constrained local governments
- Low confidence among private firms
The combination of slowing profit growth and falling investment signals a cooling capital-expenditure cycle, which in turn affects employment, regional public finances, and the economy’s future productive capacity.
3. Property Sector – Still the Largest Drag on Growth
Real estate remains China’s most persistent macroeconomic challenge. Home prices are still falling, down 2.2% y/y, with weakness most pronounced in smaller cities. Developers are under severe financial strain, and pre-sales remain weak despite support measures.
Confidence took another hit in November when a major developer, China Vanke, was downgraded to distressed status. The downgrade triggered significant selling in its bonds and intensified concerns about project completion, bank exposure, and the domino effect on local government financing vehicles.
The property slump continues to affect three major transmission channels:
- Investment: dragging down fixed-asset spending
- Households: reducing confidence, spending, and perceived wealth
- Financial stability: raising risks across the banking and shadow-banking system
Real estate remains the largest structural risk to China’s growth outlook.
4. Credit and Policy – Financing Weakens Sharply
Credit and financing data sent some of the clearest warning signals of the month. New bank loans totalled just CNY 220B in October—less than half expectations and significantly below the prior month’s CNY 1.29T. Total Social Financing printed CNY 810B, one of the weakest readings in several years.
Meanwhile, M2 money supply grew 8.2%, but outstanding bank loan growth slowed to 6.5%. The divergence between liquidity and lending suggests not a shortage of funding, but a shortage of willingness to borrow and lend.
The central bank kept its key lending benchmarks unchanged:
- 1-year Loan Prime Rate: 3.00%
- 5-year Loan Prime Rate: 3.50%
This stance reflects a balancing act: providing incremental support without triggering capital outflows, currency volatility, or new speculative behaviour in property markets.
5. Inflation – Modest Consumer Recovery, Deep Factory-Gate Deflation
Inflation showed mild improvement. Consumer prices rose 0.2% y/y, returning to positive territory after previous declines. Seasonal food demand and stronger holiday-related services contributed to the gain.
In contrast, producer prices remained deeply negative at -2.1% y/y, reflecting soft demand, excess capacity, and weak pricing power across industrial sectors.
The gap between CPI and PPI highlights an economy where final-goods prices are barely rising, while upstream sectors continue absorbing cost pressure.
6. Labour Market and Sentiment – Stable on Paper, Weaker in Reality
Official labour data remained steady, with surveyed urban unemployment at 5.1%. However, unofficial metrics suggest pockets of stress, especially among young workers and construction-linked professions.
Consumer sentiment weakened, with survey measures showing increased concern over job security, property values, and income expectations. Household behaviour continues to prioritise saving over spending or borrowing.
7. External Sector and FX – Strong Buffers but Softer Global Demand
China’s external position remains a bright spot. The country posted a trade surplus of roughly $90B in October, supported by modestly rising imports and only slightly declining exports. Foreign-exchange reserves remained large at $3.34T, providing ample room for policy management.
Diplomatic relations with the U.S. showed cautious improvement, including symbolic trade cooperation in agricultural commodities.
The yuan traded near 7.07 per dollar for much of the month, before weakening slightly alongside other Asian currencies as global interest-rate expectations shifted.
8. Markets, FDI and Geopolitics – Risk Premium Remains High
Chinese and Hong Kong equities underperformed through the month, reflecting weakness in domestic data, property-market stress and global risk aversion. Meanwhile, foreign direct investment continued to fall sharply, down 10.3% y/y, underscoring lingering concerns over regulatory uncertainty, debt risks and geopolitical tensions.
A flare-up in political tensions with Japan added another layer of volatility and reinforced a cautious stance among international investors.
9. Structural Perspective – Persistent Frictions in Energy and Finance
Despite past crackdowns, crypto-mining activity has resurfaced in some regions. This underscores ongoing mismatches between national energy priorities, local incentives, and financial-risk management—highlighting deeper structural coordination challenges.
10. Overall Assessment – Stabilising, But Not Yet Recovering
Taken together, November’s data signal a phase of fragile stabilisation rather than a convincing recovery. Growth continues, but momentum is weakening. Property remains the largest drag on confidence, credit demand and investment. Policymakers are providing support, but in limited, cautious amounts.
China’s large external buffers prevent immediate downside shocks. Yet, domestic weaknesses—especially in property, credit, and sentiment—mean that a meaningful re-acceleration will likely require broader and more forceful policy coordination in 2026.
China Economic Outlook – December 2025
A Slowing Expansion With Policy Support and Signs of Softening Demand
China moves into December 2025 with an economy that is still expanding but increasingly losing momentum. After a mid-year rebound driven by exports and high-tech manufacturing, the latest round of data points toward softer domestic demand, weaker profit growth, and signs that both confidence and investment conditions remain fragile. Policymakers are maintaining a supportive stance, although tightening global financial conditions, property-sector stress, and a cautious currency strategy are limiting the scope for aggressive stimulus.
Macroeconomic Backdrop and Growth Momentum
Economic growth slowed in the third quarter of 2025. Real GDP expanded 4.8% year-on-year, the weakest pace in a year, yet still near the government’s growth target of “around 5%.” Quarter-on-quarter growth was 1.1%, pointing to a clear deceleration. Nominal GDP growth was softer at 3.7%, reflecting subdued pricing power and ongoing disinflationary pressures.
Beneath the headline, performance remains uneven. High-tech sectors continue to outperform: production of industrial robots, 3D printers, and new-energy vehicles rose between 30% and 39%. Services growth also held firm, with output increasing 5.4% y/y, supported by strong demand in information technology, digital services, and leasing.
Consumer spending remains resilient but mixed. Retail sales across the first three quarters reached RMB 36.58 trillion, rising 4.5% y/y, supported by targeted subsidies and trade-in programs that boosted household electronics and appliance purchases. E-commerce remains a major bright spot, expanding 9.8% year-on-year, underscoring the structural strength of digital consumption.
Externally, exports continue to play a stabilizing role. Between January and September, shipments grew 7.1%, while imports slipped 0.2%, widening the trade surplus. Batteries, solar components, and electric vehicles were the primary export drivers, reflecting China’s technological expansion and rising global competitiveness in green-energy equipment.
However, more recent fourth-quarter indicators signal that momentum is fading. Industrial profits fell 5.5% y/y in October, reversing earlier gains and highlighting weak domestic demand. The services sector also lost pace, with the RatingDog/S&P Global PMI dropping to 52.6, while the official non-manufacturing PMI barely expanded at 50.2. Inflation remains extremely mild: CPI turned positive at 0.2% y/y, while producer-price deflation persisted at -2.1%, underscoring structural softness in industrial demand.
Policy Stance – Supportive, But Constrained
Policy remains geared toward supporting growth, but authorities appear unwilling to deploy aggressive measures. Guidance from the Politburo and the December Central Economic Work Conference (CEWC) continues to emphasize a proactive fiscal approach alongside a moderately loose monetary stance.
Planned measures include:
- Reserve-requirement ratio (RRR) cuts of 50–100 bps
- A 30 bp reduction in the Loan Prime Rate (LPR)
- A fiscal deficit near 4% of GDP
- Significant issuance of ultra-long-term special bonds
The goal is to maintain employment stability, support consumption upgrades, and reinforce investment flows into advanced manufacturing, semiconductors, clean energy, and infrastructure.
Economic advisers continue to advocate stronger stimulus to offset external pressures, especially potential tariff increases. Some support widening the deficit and increasing the scale of special treasury bonds, while others argue for more direct household support through fiscal transfers, tax relief, and expanded subsidy programs.
On monetary policy, the People’s Bank of China has left benchmark lending rates unchanged since August 2024. Instead, liquidity support has been supplied through targeted lending tools and regulatory guidance. Policymakers are deliberately avoiding large rate cuts as they balance three key risks:
- Capital outflows and currency depreciation
- Excessive leverage and speculative property activity
- Divergence from global interest-rate trends
Managing the exchange rate remains a priority. Daily USD/CNY fixings continue to be guided lower to reinforce currency stability and discourage speculative selling, while still supporting export competitiveness and internationalization goals.
Fiscal Developments and Support Measures
Local-government finances remain under strain. Land-transfer revenue—a major source of municipal funding—remains subdued. To offset the shortfall and support ongoing commitments, authorities front-loaded special-purpose bond issuance during the year. By October, fiscal operations had drawn on RMB 3.88 trillion to address local debt burdens.
Looking forward, projections suggest that the 2026 fiscal deficit will remain near 4% of GDP, with around RMB 5 trillion in special-purpose bond issuance and RMB 1.8 trillion in special treasury bonds.
Consumer-focused stimulus remains a core policy theme. Programs encouraging vehicle replacement, appliance upgrades, and home improvements are expected to expand in 2025. Additional measures—such as consumption vouchers, lower mortgage rates, and tax incentives—are likely to be announced at the December CEWC.
Key December 2025 Data Releases
December will be data-heavy, offering important insight into whether the economy is stabilizing or losing momentum.
- PMI readings (1 December and 31 December): Markets expect a marginal improvement in manufacturing PMI toward 49.2, but any further deterioration could intensify pressure for policy easing.
- Inflation (10 December): The next CPI/PPI release will determine if consumer-price gains sustain and whether producer-price deflation continues easing.
- Activity indicators (15 December): Industrial production, retail sales, and fixed-asset investment will show whether spending and private-sector investment recover or weaken further.
- Credit and loan data: Expected mid-month release will indicate whether targeted stimulus is translating into real lending activity.
The CEWC remains the defining December event, where markets expect policymakers to reaffirm their around 5% growth target and outline priorities including the green transition, manufacturing upgrading, consumption recovery, and financial-stability management.
Market Outlook and Forecasts
Growth and Inflation
Forecasts for 2025 remain clustered between 4.0% and 4.8% growth, with inflation expected between 0% and 0.8%. Deflation risk remains a key macro concern given weak demand, overcapacity, and cautious corporate pricing behavior.
Currency Outlook
Most forecasts expect the yuan to gradually strengthen to around 7.08 by late 2025, with potential appreciation toward 7.00 in 2026—conditional on stable trade flows and contained capital outflows. Downside scenarios linked to tariffs or external shocks could push USD/CNY toward 7.5–7.6.
Equities and Bonds
Market expectations for equities are modest. Targets for the CSI 300 range from 4,200 to 4,600, depending on tariff scenarios, domestic confidence, and earnings recovery. Analysts highlight three supportive forces:
- Ample domestic liquidity
- Household savings reallocating toward equities
- Growing corporate buybacks and dividends
Bond yields are expected to gradually rise toward 2%, assuming stronger investor sentiment and a shift from defensive positioning.
Commodities
Forecasts point to softer energy and industrial-metal prices, with Brent around $58 and copper roughly $9,350 per ton. Gold remains the exception, with some projections near $3,675/oz driven by global uncertainty and domestic investment demand.
Outlook Summary
Five themes define the December macro landscape:
- Data reinforce a soft-landing trajectory, not a strong rebound.
- Policy messaging from the CEWC will shape the 2026 roadmap.
- Deflation remains the primary macro risk.
- Geopolitical and tariff developments remain key external variables.
- Investment positioning will favor policy-aligned sectors and defensive income strategies.
Bottom Line
China ends 2025 in a state of cooling yet controlled expansion. Growth remains positive, but domestic momentum is softer, confidence is fragile, and price dynamics reflect weak demand rather than overheating. Policymakers are expected to extend targeted fiscal and monetary support into 2026 while remaining cautious about currency stability and financial risks.
Whether the economy transitions into a stronger recovery phase—or remains stuck in a slow-growth pattern—will depend heavily on policy outcomes from December’s CEWC, the trajectory of global trade conditions, and the degree to which domestic demand and investment recover in the months ahead.
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