China's 2025 Growth: A Historical Analogy of Export-Driven Resilience and Its Limits

China's economy delivered a clean 5% annual growth figure for 2025, meeting the government's target. Yet the final quarter told a different story. GDP expanded just 4.5% in the October-December period, its weakest pace in nearly three years and a clear slowdown from the 4.8% rate in the third quarter. This divergence between headline and quarterly performance sets the stage for the structural issues ahead.

The weakness is concentrated at home. Retail sales grew a meager 0.9% in December, missing forecasts and continuing a softening trend. More telling is the collapse in investment, where fixed-asset investment contracted 3.8% for the full year, a sharp deterioration from expectations. This domestic drag is the direct result of a prolonged property slump and weak household confidence.

By contrast, the industrial engine remains surprisingly robust. Industrial output climbed 5.2% in December, topping expectations and showing resilience. This stark split-weak consumption and investment versus strong manufacturing-is the hallmark of a growth model increasingly reliant on external demand. The record trade surplus of nearly $1.2 trillion last year, driven by exporters diversifying away from the U.S., has been the key buffer. This is the structural slowdown masked by export-led resilience, a setup that echoes past cycles where external strength papered over internal vulnerabilities.

Historical Analogy: The Export-Led Model as a Recurring Lifeline

China's reliance on exports to steady growth is not new. The record $1.2 trillion goods trade surplus in 2025 provides a modern parallel to the export-driven lifeline deployed during the 2008 global financial crisis. In that earlier episode, China's manufacturing sector, insulated from the worst of the Western credit crunch, became the world's factory for a struggling global economy. The government's massive fiscal and financial stimulus helped firms maintain output and employment, while a surge in exports-then a major engine of growth-provided a critical buffer against the collapse in domestic demand.

The structural similarity is clear. In both cases, a powerful export sector, bolstered by state support and global demand, has absorbed the shock of external pressures and papered over domestic weaknesses. The 2009 stimulus, however, was a blunt instrument of massive bank lending and infrastructure spending, with effects that faded within a couple of years. Today's approach is more restrained. Policymakers have managed to keep stimulus to modest levels, relying instead on exporters' agility to diversify away from the U.S. market and find new customers. This is a more targeted, market-driven response.

Yet the durability of this export-led model is now under greater strain. The 2009 lifeline was extended into a global recovery. Today's environment is one of fragmentation, with rising trade barriers and a more competitive global manufacturing landscape. The very tariffs that prompted diversification now create a higher baseline cost for Chinese goods. More critically, the model faces a new vulnerability: the persistent domestic demand shortfall. In 2009, the stimulus aimed to boost internal consumption and investment. Today, those engines remain weak, with deflation lasting for three straight years and a property slump sapping household wealth. This imbalance between strong supply and weak demand is a structural flaw that no export surplus can permanently resolve.

The historical analogy thus tests the strategy's limits. Just as the 2009 stimulus provided a short-term fix, today's export resilience offers breathing room. But without a parallel effort to reignite domestic demand, the export model risks becoming a longer-term crutch. The record surplus is a testament to manufacturing strength, but it also highlights the economy's dependence on external validation-a dependence that grows more precarious as global trade becomes less predictable.

The 2026 Outlook: Testing the Model Against a High Base

The path for 2026 begins with a high bar, set by the very export strength that powered 2025. The record $1.2 trillion goods trade surplus and the front-loaded stimulus for exporters created a strong base. This means the first quarter could be challenging, as growth must be sustained from a higher starting point. The resilience of industrial output in December, which climbed 5.2% year-on-year, provides a near-term floor, but it also highlights the economy's continued dependence on manufacturing.

The core structural imbalances, however, remain unchanged and are the real test for the coming year. The prolonged property crisis has not only driven a 3.8% contraction in fixed-asset investment for the full year but also saps household wealth and confidence. This is the root cause of weak consumption, as seen in the 0.9% year-on-year rise in retail sales in December, which missed forecasts and showed signs of fading support from consumer subsidies. The economy is stuck in a cycle where strong supply meets weak demand, a dynamic that deflationary pressures have now entrenched for three straight years.

Market expectations are now focused on whether policymakers will act to break this cycle. Analysts see a need for more targeted support, and forecasts point to potential monetary easing in the first quarter. Goldman Sachs, for instance, anticipates a 50-basis-point cut in reserve requirements and a 10-basis-point reduction in the policy rate early in the year. Such moves would aim to lower borrowing costs and provide a liquidity boost, but they are a response to the same domestic weaknesses that have persisted. The historical analogy of export-led resilience offers a temporary buffer, but it does not resolve the underlying demand shortfall. For 2026, the model will be tested not just by external pressures, but by its ability to support a domestic recovery that has been missing for years.