State of Affairs (End-2025) | China’s Economic Strengths and Weaknesses

State of Affairs End-2025 China Macro • Property • Deflation • Local Finance • External Balance

China’s Economy at the End of 2025: Resilient on the Surface, Structurally Constrained Underneath

This semi-academic report evaluates China’s economic strength and weakness at end-2025 using open-source indicators and the analytical lenses of macro stabilization, balance-sheet adjustment, and political economy. It separates headline stability from underlying demand and confidence, and assesses implications for 2026 policy choices.

As-of window: December 2025 Core claim: “Stable-by-management” while structural headwinds persist Key stress lines: property downturn, deflation risk, local fiscal strain, export reliance

Executive Summary

By late-2025, China presents a mixed macro picture: the state retains significant capacity to prevent a near-term macro break, yet the composition of growth and the condition of domestic demand remain fragile. Policy messaging emphasized a shift toward more proactive fiscal policy in 2026 to support domestic demand amid property and deflation headwinds.¹²

Top findings (end-2025)

• Deflationary strain persists: CPI rose 0.7% y/y in Nov 2025, but CPI was flat on average Jan–Nov; PPI remained in deflation (−2.2% y/y in Nov).³⁴
• Property remains a structural drag: reporting indicates ongoing price declines and expectations that weakness extends into 2026.⁵⁶
• Local fiscal stress is acute: record issuance of ABS is used to plug funding gaps, raising sustainability concerns.⁷
• Exports are doing disproportionate work: the trade surplus exceeded $1 trillion in the first 11 months of 2025; weak imports imply subdued domestic demand.⁸
• External institutions expect moderation: World Bank and OECD projections emphasize persistent headwinds and slower growth in 2026.⁹¹⁰

Methodology and Scope

Sources: (1) China’s National Bureau of Statistics (NBS) releases, (2) high-frequency macro and property reporting from major wire services, and (3) assessments by international organizations (World Bank, OECD, IMF). The purpose is to provide a structured end-2025 snapshot for strategic understanding, not a substitute for confidential policy intelligence.

Analytical framing: macro stabilization (growth, inflation, policy stance); balance-sheet adjustment (property and wealth effects); political economy (local fiscal channels); external balance (trade surplus and frictions).

1. Macro Conditions: Headline Stability Amid Persistent Disinflation

1.1 CPI uptick, but broad disinflation remains

NBS data show CPI increased 0.7% year-on-year in November 2025, while the average CPI for January–November remained flat versus the same period the previous year—consistent with weak underlying demand.³ Reuters reported that producer prices remained in deflation (PPI −2.2% y/y in November), underscoring deep-seated disinflationary forces despite the CPI uptick.⁴

Interpretation

Persistent PPI deflation is a warning signal for corporate margins, debt servicing, and employment appetite. If price weakness persists into 2026, policy will likely lean further toward fiscal demand support.

1.2 Policy stance: monetary caution; stronger fiscal signaling for 2026

Reuters reported that benchmark lending rates were left unchanged for a seventh straight month by December 2025, indicating cautious monetary easing while authorities prepared to rely more heavily on fiscal levers in 2026.¹¹ Separate Reuters reporting indicated official guidance that fiscal policy would be more proactive in 2026 to boost domestic demand and innovation amid property and deflation headwinds.¹

2. Property Sector: The Core Constraint on Confidence

2.1 Prices and expectations remain weak

Reuters reported that new home prices slid further in November 2025, with economists expecting declines to extend into 2026, and noted IMF calls for a decisive resolution to the property crisis.⁵ A Reuters poll projected additional home price declines through 2026, implying a longer balance-sheet repair cycle.⁶

2.2 Wealth effects and precautionary savings

OECD analysis links dampened consumption to high precautionary savings and continued contraction in real estate investment, with falling prices and excess capacity weighing on growth.¹⁰ In practical terms, a prolonged property adjustment can depress household sentiment and delay a broad-based domestic-demand recovery.

Implication

If property remains weak, domestic demand may require more direct fiscal support (social safety net expansion, targeted transfers, or consumption-support measures) rather than relying on confidence alone.

3. Local Government Finance: Liquidity Relief with Emerging Quality Risks

3.1 Record ABS issuance as fiscal symptom

Financial Times reported that local governments drove record sales of asset-backed securities (ABS) in 2025 to fill funding gaps as property weakness and slower growth squeezed local finances, raising concerns over the quality of securitized assets as higher-quality holdings are depleted.⁷

3.2 Why this matters for macro stability

Local governments are essential to infrastructure investment and service provision. When local fiscal capacity tightens, stimulus transmission weakens and incentives shift toward off-balance-sheet tools—stabilizing activity short-term while potentially increasing medium-term financial fragility.

4. External Balance: Export Buffer and Rising Constraint

4.1 Surplus dynamics: exports strong, imports soft

Reuters reported China’s trade surplus topped $1 trillion in the first 11 months of 2025; exports outperformed expectations while imports underperformed, suggesting subdued domestic demand even as external shipments support headline growth.⁸

4.2 Export reliance and trade frictions

Reuters reported IMF messaging urging China to speed up structural reform and warning of consequences tied to an export-heavy path, especially as trading partners scrutinize surplus-driven competition in manufactured goods.¹² This increases the probability that near-term export strength becomes a medium-term policy constraint through tariffs, anti-dumping measures, and technology controls.

Strategic takeaway

If export outperformance continues while imports remain weak, global pushback can intensify—making “export-led stabilization” harder to sustain in 2026–2027.

5. 2026 Outlook: Managed Stabilization vs. Structural Reform

The World Bank’s December 2025 China Economic Update projects growth to ease in 2026 amid ongoing property adjustment and the challenge of balancing growth support with financial-risk containment.⁹ OECD projections similarly anticipate a slowdown, emphasizing continued property contraction and dampened consumption.¹⁰ Against this backdrop, the announced shift toward more proactive fiscal policy in 2026 suggests leadership recognizes the need to support demand more directly.¹

End-2025 Strength–Weakness Scorecard

• Stabilization capacity: Strong, but increasingly policy-dependent.¹
• Domestic demand: Weak-to-moderate (imports soft; price signals subdued).³⁸
• Deflation risk: Elevated (flat CPI trend + PPI deflation).³⁴
• Property stabilization: Weak (continued declines expected into 2026).⁵⁶
• Local fiscal health: Strained (ABS issuance indicates funding gaps).⁷
• External buffer: Strong near-term; medium-term frictions rising.⁸¹²

Key indicators to monitor (Q1–Q2 2026)

• Prices: CPI breadth, PPI trend, and credit demand.³⁴
• Property: price indices, secondary market conditions, inventory and developer financing.⁵⁶
• Local finance: ABS quality, debt swaps, and revenue performance of securitized assets.⁷
• External sector: exports vs. imports; new trade restrictions.⁸¹²

Conclusion

At end-2025, China’s economy is best characterized as stable-by-management. The state can likely prevent a near-term rupture, but domestic confidence is constrained by property-led balance-sheet adjustment, persistent disinflation, and local fiscal strain. Exports provide a near-term buffer, yet they increase exposure to external pushback. The effectiveness of 2026 policy will hinge on whether fiscal expansion can lift domestic demand without deepening medium-term financial vulnerabilities.

Reading note: China looks “strong” if one focuses on stabilization capacity and export performance; it looks “weak” if one focuses on household confidence, property adjustment, and deflation risk. End-2025 is the intersection point where both descriptions are simultaneously true.

References (Open Sources)

1. Reuters (Dec 28, 2025). China’s finance ministry says fiscal policies will be more “proactive” in 2026.
2. Reuters (Dec 8, 2025). China pledges to expand demand with more proactive policies in 2026.
3. National Bureau of Statistics of China (Dec 11, 2025). Consumer Price Index in November 2025.
4. Reuters (Dec 10, 2025). China’s consumer inflation quickens in November; producer deflation persists.
5. Reuters (Dec 15, 2025). China’s home prices slide further in November; weakness seen into 2026.
6. Reuters (Dec 5, 2025). China home prices expected to keep falling into 2026 (poll).
7. Financial Times (Dec 29, 2025). China’s cash-strapped local governments drive record sales of asset-backed securities.
8. Reuters (Dec 8, 2025). China’s trade surplus tops $1 trillion; imports underperform.
9. World Bank (Dec 2025). China Economic Update: Advancing Reforms Can Enhance Prospects.
10. OECD (Dec 2, 2025). OECD Economic Outlook, Volume 2025 Issue 2 — China.
11. Reuters (Dec 22, 2025). China leaves benchmark lending rates unchanged for seventh straight month.
12. Reuters (Dec 10, 2025). IMF urges China to speed up structural reform; raises growth forecasts.