How China is coping with economic challenges. Analysis

In the first three quarters of 2025, China's economy grew by 5.2% due to the restructuring of foreign trade and increased exports to already established destinations. However, the protracted housing crisis and ongoing disagreements with the United States continue to negatively affect business sentiment and domestic demand. How exactly the PRC overcomes economic and economic difficulties is described in the Izvestia article.

Achievements of the Chinese economy

• In January–September 2025, the Chinese economy grew by 5.2% compared to last year, but in the third quarter the pace slowed to 4.8% after stronger growth in the spring, and the total GDP exceeded 101 trillion yuan. The industry is growing, while retail sales are declining due to the real estate crisis and trade disputes with the United States.

• Such results allow China to count on meeting the official annual growth target of about 5%, which the authorities use as a signal of the economy's resilience to external pressure. At the same time, the expert community points to a loss of GDP growth dynamics and deflationary risks. At the end of the year, growth was largely supported by investment, while weak consumption and a downturn in the real estate sector continue to constrain overall economic development.

The impact of the trade war on China

• China and the United States are still in a trade confrontation. After the introduction of US duties on Chinese goods, which reached 145%, the parties agreed in May to temporarily reduce them to 10% for 90 days, and then extended this regime. However, then the parties managed to agree on concessions. In particular, China has frozen 24% duties for a year, and the United States has relaxed export controls. These measures can be seen as a temporary truce that has helped stabilize trade.

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• In 2025, China has shown the ability to withstand US pressure in the trade war. Despite high tariffs and restrictions on technology, export flows were redirected through Southeast Asian countries and Mexico, and the total trade surplus exceeded $1 trillion for the first time. Externally, the economy showed resilience, although internal indicators remained weak. In particular, industrial growth was moderate, retail sales slowed, and real estate investment declined.

• In 2026, China will continue its policy of selective openness. This means that foreign investments will be welcomed where they strengthen the economy. However, restrictions will remain in strategically important sectors. The focus is on new manufacturing forces, including AI, robotics, and high-tech manufacturing, which simultaneously increases economic efficiency and strengthens sovereignty. However, the risks for China are still significant, primarily with regard to political tensions in relations with the United States. Beijing will continue to combine strategic flexibility with maintaining control over key areas of the economy.

In general, the trade wars have shown that China retains a strategic advantage, attracting the attention of US allies as a more reliable partner. In general, Beijing has increased its influence through industry and technology. China accounts for more than a third of the world's added value in manufacturing, controls about 60% of the supply of components for renewable energy, and is actively developing AI and pharmaceuticals. Restrictions on the export of rare earth materials have shown that the country uses the economic dependence of others as a tool of power.

Future plans

• 2026 will be the first year of a new five-year plan focused on technological sovereignty and qualitative growth. The Ministry of Finance of China intends to increase budget expenditures. The budget's priorities include stimulating employment, increasing household incomes, and developing education, healthcare, and social protection. Additionally, support will be provided to the trade in program for consumer goods, sales of which reached 1.1 trillion yuan in the first half of 2025. This ensured retail sales growth of 5% last year compared to the previous year.

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• The situation in the real estate market continues to be a key risk factor. The drop in sales and new construction projects is due to weakening demand for housing, slowing urbanization and demographic problems. The government is likely to continue to lower mortgage rates, promote home sales, and implement structural reforms. Experts predict a reduction in sales and investments in real estate by 5-10% in 2026 and 0-5% in 2027. At the same time, the negative impact on GDP will decrease to 0.5–1 percentage points.

• The growth of innovative sectors of the economy will be a key driver, offsetting the slowdown in real estate. In 2024, such industries provided 15-20% of GDP, and by 2030, the share of these sectors may grow by 3 percentage points due to government investments in research and development. The main risks are related to the US trade and technology policy.

• In general, the Chinese economy in 2026 is projected to be stable and capable of sustained growth, which will be facilitated by a set of macroeconomic measures and a focus on domestic consumption as the main source of development. The IMF estimates that GDP growth will be about 4.5% in 2026, while China's contribution to global economic growth will remain at about 30%. At the same time, the Chinese economy will gradually shift its focus from investment and exports to services and consumption.