- China’s economy grew by 4.5%yoy in 4Q 2025, with sequential growth of 1.2%qoq.
- Overcapacity and weak demand weighed on corporate capital spending.
- Trade outlook remains challenging amid geopolitical tensions.
- Strengthening domestic demand is a top priority in the first year of the 15th Five-Year Plan.
- Implications for forecast: We anticipate a 25bps cut in the 1-year LPR in 2026,
Related Insights
- Singapore: Strong start to the year10 Feb 2026
- Indonesia: Balancing policy, safeguarding growth 05 Feb 2026
- FX: DEER recommendations (February 2026)03 Feb 2026
China’s economic growth slowed from 4.8%yoy in 3Q to 4.5% in 4Q25, achieving the government’s 5% full-year growth target. The year was well supported by front-loaded trade activity, even when geopolitical tensions heightened. Looking forward, persistent trade frictions will continue to weigh on the economic outlook. Reviving household consumption alongside investment will be critical to sustaining growth. We expect China’s GDP growth to moderate to 4.5% in 2026.
Exports
External trade remains a key growth engine. The trade surplus has reached USD 1 trillion for the second year in a row despite ongoing trade tensions. Exports grew by 6.6%yoy in December, supported by shipments to ASEAN and other emerging markets. Import growth has also accelerated, as manufacturers are stocking more intermediate goods in response to new orders.
However, recent US actions in Latin America and the Middle East have reignited concerns about the global trade outlook. According to our estimates, the 25% Iran-related tariff (negative) and the removal of a 10% tariff from a previous trade deal (positive) could reduce China’s real GDP growth by around 0.26% point in 2026.
Retail sales
Retail sales growth moderated further from 1.3%yoy in November to 0.9% in December. Household sentiment remained weak amid poor job prospects, slowing income growth, and elevated precautionary savings. Falling property prices continued to erode wealth effects from the equity market, suggesting that consumption will likely stay subdued in the near term.
Industrial production
Industrial activities were capped by moderating domestic demand and persistent overcapacity. Industrial production growth dipped from 6.0%yoy in 11M25 to 5.9% in 2025. Manufacturers scaled back operations under the “anti-involution” initiative. In particular, the mining sector’s capacity utilization rate slipped from 75.2% in 2024 to 72.8% in 2025, reflecting softer upstream production dynamics.
Fixed asset investment (FAI)
Sentiment toward capital spending turned more cautious. Contraction in FAI widened to a -3.8%yoy in 2025. State-led and private investment fell further to -2.5% and -6.4%yoy respectively, with broad-based declines across all segments. Meanwhile, foreign direct investment plunged 13.8%, as continued trade friction appears to be dampening investment appetite.
Property investment
The real estate sector remained a major drag, with investment contracting by 17.2%yoy in 2025. Developers continued to prioritize project completion, but elevated inventories—equivalent to roughly 30 months of residential turnover—have weighed on prices.
Loan and deposit
Monetary data stayed weak. Outstanding loan growth slipped to a two-decade low of 6.3%yoy in December. Both corporate and household mid- to long-term loans fell, reflecting early repayments. The M2–M1 gap further rebounded to 4.7%ppt in December. Decelerating M1 and weak credit expansion suggested that liquidity injections had yet to feed through to the real economy effectively.
Inflation
Consumer prices have returned to positive territory for three consecutive months, reaching 0.8% – the highest level since February 2023. The contraction in PPI has also narrowed to 1.9%. This improvement is partly attributed to the anti-involution campaign, which aims to curb excessive investment and production.
Looking ahead
Boosting domestic demand through jobs, income, social support, developing new-quality productive forces, and enhancing technological self-reliance and proactively managing local government debt risks are the key priorities for the first year of the 15th Five-Year Plan. China’s economy is growing at a slower speed but towards higher quality. (China 2026 Macro outlook: Quality driven growth)
The PBOC maintains an accommodative stance, evidenced by the recent 25bps cut to structural tool rates. This targeted easing lowers banks’ funding costs, incentivizing lending to SMEs and the tech sector without immediately straining record-low net interest margins. While this approach supports 'weak links' first, persistent economic headwinds keep broader benchmark easing on the table. We expect a cumulative 25bps LPR reduction over the course of 2026.
Click here to read the full report
Nathan Chow 周洪禮
Senior Economist and Strategist - China & Hong Kong 高級經濟學家及策略師 - 中國及香港
[email protected]
To unsubscribe, please click here.
Topic
Explore more
E & S FlashGENERAL DISCLOSURE/ DISCLAIMER (For Macroeconomics, Currencies, Interest Rates & Digital Assets)
The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
[#for Distribution in Singapore] This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 11th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
Virtual currencies are highly speculative digital "virtual commodities", and are not currencies. It is not a financial product approved by the Taiwan Financial Supervisory Commission, and the safeguards of the existing investor protection regime does not apply. The prices of virtual currencies may fluctuate greatly, and the investment risk is high. Before engaging in such transactions, the investor should carefully assess the risks, and seek its own independent advice.
Related Insights
- Singapore: Strong start to the year10 Feb 2026
- Indonesia: Balancing policy, safeguarding growth 05 Feb 2026
- FX: DEER recommendations (February 2026)03 Feb 2026
Related Insights
- Singapore: Strong start to the year10 Feb 2026
- Indonesia: Balancing policy, safeguarding growth 05 Feb 2026
- FX: DEER recommendations (February 2026)03 Feb 2026
DISCLAIMER