To sustain prosperity as its population shrinks, China will have to invest big at home

In 2025, China’s GDP grew 5%, supported by exports amid a trade war, but faces challenges like subdued consumer spending, public debt, a shrinking population, and structural economic issues.

China’s economy met the government’s official growth target in 2025, with official figures showing real gross domestic product (GDP) expanded by 5%.

Exports played an outsized role in delivering this headline growth. Despite a simmering trade war with the United States, China finished up the year with a record-breaking trade surplus of US$1.2 trillion as it lifted exports to new markets in the rest of the world.

Yet behind these headline figures, China’s economy continues to face some stubborn headwinds. Consumer spending remains subdued. Exports – while strong – face mounting global uncertainty. And government expenditure is constrained by public sector debt pressures.

Adding to this, China’s population continued to shrink for the fourth straight year in 2025 as the birth rate reached a record low, reinforcing concerns an ageing population will hold back the economy in coming years.

A shrinking population isn’t necessarily incompatible with rising living standards. What matters is whether productivity growth can compensate for a smaller workforce.

For China, that means domestic investment, rather than consumption or expansionary government spending, is likely to be the key mechanism for sustaining growth.

Recent data suggest China’s weak household consumption is not merely a temporary, post-pandemic phenomenon but instead reflects deeper structural factors.

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