Beijing [China], January 29: Despite achieving its growth target for 2025, China is facing stagnation, with the "ghost" of deflation threatening its economy.
The Information Office of the State Council of China recently held a press conference on the country's trade activities.
Targets met, but many uncertainties remain.
According to information presented at the press conference, the Chinese mainland market saw retail sales of consumer goods exceed 50 trillion yuan for the first time last year , a 3% increase compared to the same period last year. China also implemented pilot programs to improve the consumer environment, including further easing tax refund policies for overseas shoppers.
Previously, China also announced economic growth of approximately 5% in 2025 - achieving its target. More specifically, growth in the fourth quarter of 2025 was 4.5% year-on-year, with growth rates in the first, second, and third quarters of 2025 being 5.4%, 5.2%, and 4.8%, respectively. Thus, the growth rate across the quarters of 2025 has gradually decreased.
Furthermore, China's fixed asset investment in 2025 is projected to decline by 3.8%, marking the first drop in decades. This decline includes investments in housing, factories, and roads, among other areas. This is due to real estate companies cutting back on construction amid a prolonged downturn in the property market and the government's efforts to curb oversupply. Retail sales in December 2025 also fell short of expectations. This highlights the difficulties China faces in its efforts to shift its economy toward consumerism, amidst global trade tensions.
In 2025, in addition to achieving its economic growth targets, China's trade surplus also reached a record high of $1.19 trillion. This result was achieved thanks to Chinese businesses promptly expanding into other markets to cope with US tariff measures .
However, according to an analysis by Dr. Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics (USA), the record trade surplus mainly stems from virtually no increase in imports due to sluggish domestic consumer demand.
Furthermore, Chinese businesses have to lower the prices of their goods to penetrate markets outside the US, or transship goods to the US through third-party markets.
Both of the aforementioned factors have led to a decline in profits. In fact, 25% of China's listed companies are currently unprofitable. Business reports from Chinese companies show that profits are shrinking across many industries, including steel, concrete, electric vehicles, robotics, spices, and cosmetics. According to the FactSet index of 5,000 mainland-based companies, the profit margins of listed companies on the Chinese market are at their lowest level since 2009.
"The Ghost " of Deflation
Another pressing issue facing China is its deflationary economy. China's GDP deflator (calculated as the ratio of nominal GDP at current prices to real GDP at constant prices) has been negative since 2023. This is a sign that domestic demand is declining.
Over the past few years, China has implemented policies to encourage consumption in order to shift the structure of its economic growth. However, from another perspective, the country has also fostered a race for industrial development, especially in advanced fields such as semiconductors and artificial intelligence (AI). This has led local governments and the financial system to be encouraged to boost production rather than consumer spending. Businesses receive cheap loans from Chinese banks, as well as investments and tax breaks from local governments.
Meanwhile, economic difficulties, a sluggish real estate market, and numerous uncertainties have led mainland Chinese citizens to save more. Some studies indicate that the average Chinese household saves about one-third of their income, while Americans save less than 5%. According to the World Bank, household spending will only account for 40% of China's gross domestic product in 2024, compared to the world average of around 55% and the US average of around 68%.
This reality is creating a "ghost" of deflation, threatening to plunge the Chinese economy into a prolonged period of stagnation similar to what Japan experienced in the 1990s and early 2000s.
Source: Thanh Nien Newspaper
