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China’s economic growth slowed from 5.2%yoy in 2Q to 4.8% in 3Q25, with a sequential expansion of 1.1%qoq. The economy remains broadly on course to achieve the government’s 5% full-year growth target, supported by front-loading activities. However, household spending remains under strain. Investment and credit demand stayed subdued, pressured by the capacity reduction campaign and ongoing property stress. Meanwhile, trade tensions continue to cloud the outlook, highlighting the need for timely policy support.

Exports

Export growth accelerated from 5.9%yoy ytd in August to 6.1% in September, backed by robust non-U.S. trade performance. Exports to the U.S. continued to contract, while shipments to ASEAN, Latin America, the EU, and Africa saw modest gains. The external environment remains challenging amid trade tensions, though ongoing China–U.S. negotiations and a potential Trump–Xi meeting have helped ease near-term uncertainty.

Retail sales

Retail sales growth moderated to 4.5%yoy in September, despite continued subsidies for durable goods such as home appliances and electronics. Household sentiment remains weak amid poor job prospects, slowing income growth, and elevated precautionary savings. The household deposit-to-GDP ratio climbed from 114% in 2Q25 to 116% in 3Q25. Falling property prices continue to erode wealth effects from the equity market, suggesting that consumption will likely stay subdued in the near term.

Industrial production

Although external demand strengthened, industrial activity was capped by muted domestic demand and persistent overcapacity. Industrial production growth held steady at 6.2%yoy ytd in September. Many firms are scaling back operations under the “anti-involution” initiative, while growth in NEVs, robotics, and tech hardware has lost momentum. The industrial capacity utilization rate slipped from 75.1% in 3Q24 to 74.6% in 3Q25, reflecting softer production dynamics.

Fixed asset investment (FAI)

Corporate sentiment toward capital spending turned more cautious. FAI growth weakened from a marginal 0.5%yoy ytd increase in August to a 0.5% contraction in September. Private investment fell further, from -2.3% to -3.1% over the same period. State-led investment also cooled, with broad-based slowdowns across infrastructure, manufacturing, and technology segments. Meanwhile, foreign direct investment plunged 12.6%, extending a 27-month streak of contraction. Continued trade friction appears to be dampening investment appetite.

Property investment

Real estate sector remained a major drag, with investment down 13.9%yoy ytd in September, compared with 12.9% in August. Developers continued to prioritize project completion, but elevated inventories—equivalent to roughly 26 months of residential turnover—have kept downward pressure on prices.

Inflation

Moderated production activities led to narrowed producer prices, from -2.9%yoy to -2.3% in September. Price weakness among upstream and midstream producers also eased. On consumer side, CPI remained slightly negative at -0.3%yoy, primarily weighed down by food prices. Core CPI, however, rose for a fourth consecutive month to 1.0%yoy, signaling gradual normalization in service-related demand. Both PPI and CPI should stay soft amid weakened aggregate demand.

Loan and deposit

Monetary data also pointed to caution. Outstanding loan growth slipped to a two-decade low of 6.6%yoy in September. Both corporate and household mid-to-long-term loans fell, reflecting early repayments. The M1–M2 gap further narrowed from 2.8%ppt in August to 1.2%ppt in September. Although faster M1 growth has supported the A-share market, weak credit expansion suggests that liquidity injections have yet to effectively feed through to the real economy.

Looking ahead

Achieving the full-year 5% growth target remains feasible. With 5.2% growth in the first three quarters, the economy only needs 4.5% expansion in 4Q. To support this, monetary and fiscal policies are expected to remain accommodative. We anticipate a 10bps cut in the 1-year LPR in 4Q25, with another 25bps possible in 2026. The central bank is also likely to continue liquidity injection, having already injected RMB1.0trn via open market operations in 3Q.

The Fourth Plenary Session of the 20th CPC Central Committee has begun to discuss the 15th Five-Year Plan. The medium-term GDP growth target is likely to be revised down from 5% to a range of 4.5–5%, with Beijing expected to emphasize productivity gains and innovation-driven growth. This growth model will rely less on leverage compared with traditional infrastructure and property-led investment.

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