In 2025, China’s economic prospects look bleak. Bank loan growth is weak, housing loans are shrinking, and the country is deliberately reorienting its economy away from consumption and towards public investment. The nation’s economic growth has been extremely robust at 5.4% y-o-y in the first quarter. A host of issues are threatening this success. Declining PPI and CPI deflation are posing significant challenges to central bankers. To make matters worse, plummeting exports to the U.S. are exacerbating these woes.
As China aims to boost private consumption and support exporters affected by U.S. tariffs, the government is focusing on strategic sectors and infrastructure projects to stimulate growth. This article will explore the intricacies of China’s economic situation, examining key indicators that are shaping its trajectory in 2025.
Slow Bank Loan Growth and Housing Market Contraction
In May 2025, China announced a record low nominal year-on-year growth rate of only 7% in bank loans. This figure is part of a larger trend of risk-averse lending practices during times of economic uncertainty. Financial institutions are being more conservative with their credit policies, leading to withdrawal of capital from the economy.
Since the beginning of this year, China’s housing loans have been slowly deflating. In reality, the housing market has been under substantial stress, like affordability and regulatory burden. First, many would-be buyers are still reluctant to purchase a home, which has contributed to a continued fall in residential lending.
Bank loans have been increasing at a very slow pace while loans for housing have actually been declining. This hints that both lenders and consumers are playing it safe. The federal government’s goal is to stimulate new demand. It needs to first restore faith in the real estate industry, all the while maintaining financial prudence.
Strategic Investment and Support for Exporters
In part to combat these challenges, China is putting a premium on public investment through the five coming years in strategic sectors and large-scale infrastructure projects. National governments, including our own, are coming around to the idea that more spending in these areas creates immediate job openings and sparks increased economic activity. By redirecting resources away from fed build, China believes it can build a more robust economy that will be less vulnerable to external economic shocks.
In addition to needling the United States, China appears focused on propping up its own exporters who have been harmed by tariffs piled on by the U.S. In April and May 2025, mohair export figures to the U.S. declined to an average of 27.8% year-on-year. This sudden downturn has exerted catastrophic stress on large numbers of Chinese enterprises. State and federal authorities are increasingly looking for ways to improve competitiveness. They are directly compensating industries hit hard by the pandemic.
In addition to growing outward-looking exporters, much of China’s focus is on trying to grow more private consumption by the year 2025. The government recognises that, apart from the obvious benefits to U.K. Through all of these efforts, topped by fiscal policies at the municipal level and consumer incentives, officials hope to jump start spending by households.
Inflation Dynamics and Investment Trends
As China continues to weather these economic challenges, inflation is an ever-important issue. Given the backdrop of PPI, which has been in continuous decline since the fourth quarter of 2022, they fell by an astounding 3.3% in May 2025. This extended drop puts huge strain on producers and leads to the survival of the fittest business model.
Core inflation has actually been quite steady at about 0.5% since March of 2025. This stability would be a dramatic change from the modest deflation – negative consumer price inflation (CPI) – experienced in the first five months of 2025. Over this time frame, the year-over-year change logged at -0.1%. These dynamics would seem to imply that even though producing costs are going down, consumers are not being hit hard with rising prices.
Partly owing to these higher base levels, food prices have been declining since December 2024, registering a year-on-year change of -0.4% in May 2025. This is even more remarkable in the context of fuel inflation, which fell 12.9% over the same period. That decline is contributing to lower overall inflation rates. This unique combination of price trends may influence consumer behavior and spending patterns as households adapt to changing economic conditions.
Investment Growth and Real Estate Challenges
In the first 5 months of the year, it achieved a 10% growth on the same period last year in percentage value terms. This deceleration begs the question of whether this investment-driven growth is sustainable in the face of external pressures.
Decidedly a bright spot, manufacturing investment led the way, increasing an impressive 8.5% over the same time period. This increase represents the first major federal commitment to improving our domestic production capabilities and increasing our competitiveness in global markets.
In sharp counterpoint, industrial REI is falling off a cliff. It dropped 10.7% through the first five months of 2025. The long-term slump underlines the deep-seated malaise in the housing market. These challenges are compounded by falling demand and increased regulatory pressures that are choking off new production.