China’s economy grew by 4.8% year-on-year in the third quarter of 2025, marking its slowest expansion in a year and signaling that the world’s second-largest economy is entering a more complex phase of structural adjustment.
Although the growth rate aligned with analyst expectations, the underlying data reveal a deepening crisis in investment and confidence — particularly in the property sector, which continues to drag on overall output.
The weakness was most visible in fixed-asset investment, a crucial driver of China’s growth for decades. For the first nine months of the year, investment unexpectedly contracted by 0.5%, a rare decline and the first such contraction since 2020, when the pandemic paralyzed the economy. Analysts had anticipated a modest 0.1% increase, making the result significantly worse than expected.
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The data highlight the fragility of China’s growth model, still heavily dependent on property and infrastructure, both of which are now faltering.
The country’s property sector remains the epicenter of the downturn. Property investment plunged 13.9% in the year through September, extending the 12.9% drop recorded through August. The sector’s prolonged slide reflects not just declining sales but also tighter financing, unfinished housing projects, and growing defaults among major developers.
The drop in fixed-asset investment is rare and alarming, CNBC quoted Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, warning that fourth-quarter GDP growth faces downward pressure.
According to CNBC, Bruce Pang, adjunct associate professor at CUHK Business School, said the property slump could mark a lasting structural shift: “Weakness in real estate investment may persist for a longer period than previously anticipated. This could represent a structural restructuring, and it’s possible that investment will never return to its prior levels.”
Such a scenario would force Beijing to rethink its long-standing growth model, which has relied on heavy property development and infrastructure spending to sustain economic momentum.
Shifting Growth Drivers: From Property to Production
There were, however, pockets of strength in September. Industrial production grew 6.5%, exceeding expectations of 5% and rising from 5.2% the previous month. The resilience of manufacturing helped offset some of the drag from the property downturn.
Excluding real estate, fixed-asset investment rose 3% for the first three quarters, though that was slower than the 4.2% recorded as of August. Private sector investment outside property climbed 2.1%, down from 3% in August — another signal of waning business confidence.
“The weakness in investment spending, especially by the private sector, reflects a lack of confidence in the economy’s growth prospects as well as in government policies that could support growth,” said Eswar Prasad, professor of economics at Cornell University.
This hesitation among private investors underscores a growing challenge for Beijing: stimulating long-term, innovation-led investment without falling back on state-driven construction projects that have already led to excessive debt.
Consumer Spending Falters Despite Income Gains
Household consumption — the other critical pillar of domestic demand — remained tepid. Retail sales grew 3% in September from a year earlier, in line with forecasts but down from 3.4% in August. The slowdown suggests that consumers are tightening their wallets amid concerns about jobs and real estate wealth.
Sales of home appliances rose 3.3% in September, a sharp drop from the 25.3% surge recorded over the first three quarters, suggesting that the earlier consumer goods subsidy program is losing steam.
“I don’t think we could stimulate domestic demand without stabilizing the housing market first,” Dan Wang of Eurasia Group said Monday ahead of the data release on CNBC’s “Squawk Box Asia,” indicating the tight link between property confidence and consumer spending in China.
Official data show disposable income for urban residents rose 4.5% in the first nine months of the year, while rural income increased 6% after adjusting for inflation. Meanwhile, the urban unemployment rate edged down slightly to 5.2% in September, from 5.3% in August, providing a limited cushion for household sentiment.
Despite modest wage growth and employment gains, the combination of falling home prices, rising living costs, and subdued policy support has continued to sap consumer confidence — an issue Beijing has struggled to reverse.
Inflation and Policy Constraints
China’s price dynamics also point to persistent deflationary pressure. The core consumer price index (CPI), which excludes volatile food and energy costs, rose at its fastest pace since February 2024, but the headline CPI fell 0.3%, missing expectations.
This points to the dilemma facing policymakers: weak demand is keeping inflation below target, while financial risks tied to property and local government debt limit the scope for aggressive stimulus.
Earlier Monday, the People’s Bank of China kept its benchmark lending rates unchanged for the sixth straight month, maintaining the one-year loan prime rate at 3% and the five-year rate at 3.5%. The pause is seen as Beijing’s preference for targeted measures over broad rate cuts, as it seeks to stabilize the yuan and manage capital flows amid U.S. monetary tightening.
One bright spot remains China’s export sector, which showed continued resilience in September despite mounting geopolitical tensions with the United States. Manufacturing and high-value electronics exports have held up relatively well, supported by robust demand from Southeast Asia and Latin America.
Yet analysts warn that external demand may weaken if global growth slows further, especially with the U.S. economy showing signs of cooling and Europe battling persistent inflation.
The Push for Reform, Stability, and Control
China’s top leaders began a four-day policy meeting on Monday to chart economic priorities for the next five years. The central challenge, experts say, is how to maintain growth while steering the economy toward a new model less dependent on property and infrastructure.
Beijing has signaled a greater emphasis on domestic consumption and homegrown technology, particularly in sectors such as semiconductors, electric vehicles, and artificial intelligence. But analysts caution that this transition will take time and may not immediately compensate for the lost momentum in the property sector.
“China should step up its efforts in tech, but we also firmly believe the so-called old economy will remain the backbone of the economy for the foreseeable future,” said Ting Lu, Nomura’s Chief China Economist. “Beijing will have to clean up the property sector mess in 2026–2030 for several reasons.”
Lu noted that real estate remains second only to exports in contributing to GDP. At the same time, about half of Chinese household wealth is tied to property, and the sector still accounts for roughly 18% of local government revenue. He added that overinvestment in emerging industries such as electric vehicles has already become counterproductive, leading to overcapacity and inefficiencies.
However, the third-quarter data suggest that China’s economy is not in crisis, but at a crossroads. Growth remains respectable by global standards, yet its composition is shifting in ways that could redefine the country’s economic trajectory.
The property slump, weak private investment, and subdued consumer sentiment all point to a longer-term structural adjustment — one that will require a new balance between state guidance and market confidence.
Beijing’s next five-year plan will test whether the country can move beyond its property-dependent past toward a more innovation-driven future without triggering deeper financial instability.