Despite improved performance on several of these fronts, China’s economic performance in the third quarter of 2025 still paints a troubling picture of growth amidst retrenchment. Various sectors responded markedly differently to internal and external forces. The country’s GDP growth, while less than expected, benefited from an increase in external demand, suggesting that international markets may provide a buffer against slower domestic activity.
In this quarter, the primary industry – agriculture, forestry, fishing and hunting – spurred a laudable 4.0% year-on-year growth rate for our original industry. That said, industrial production is up 6.2% year-to-date through the first three quarters of the year. This incredible expansion is largely the result of remarkable new growth in the manufacturing sector. High-tech manufacturing witnessed stunning 7.3% and 10.3% year-on-year gains in consecutive quarters. This remarkable growth demonstrates the sector’s increasing critical importance in China’s economic development.
Yet in contrast to this positive trend, retail sales failed to reflect that positive trend. Retail sales growth rocketed up to 4.5% year-to-date through the first three quarters. Like in September, it slowed significantly to only 3.0% YoY rates. This challenge deepens worries over consumer confidence and spending as China steers through increasingly stormy economic waters.
Industrial Growth Amidst Challenges
Despite the tough national economic situation, the industrial sector is still one of the China economy’s star performers, providing a crucial driving force for the GDP growth. Year-to-date industrial production is up 6.2% showing the strength of this sector’s resilience, more specifically the strength of high tech manufacturing. The latter’s growth rates of 7.3% and 10.3% indicate a robust demand for advanced technologies, which are increasingly becoming pivotal to China’s economic strategy.
Much of this growth is due to a concerted effort from the government to encourage innovative industries and technological adoption to modernize existing, more traditional industries. Second, China is absolutely committed to becoming the world’s technology leader. In response, it has significantly increased R&D investments and developed an equally vibrant manufacturing ecosystem that allows for rapid pivoting to where the global market is pointing.
Challenges remain. Nearly as big a jump is the fixed asset investment growth, which has dropped like a stone to -0.5% year-to-date. This recent dip indicates that firms are wary to spend money on new ventures with an uncertain economic outlook. Xavier ONeill, the author of this story, posing with a new smart scooter. Our languishing property market is weighing on economic performance, with residential property investment down 13.9% this year.
Retail Sales Show Signs of Weakness
Even with a recovery from the pandemic’s lows on retail sales, the latest data shows a very troubling sign for China’s consumer spending. After peaking at 4.5% year-to-date in July, retail sales fell to a mere 3.0% y-o-y in September. This rapid unexpected consumer slowdown across an economy marked by abundant economic uncertainty leads to a natural question about how sustainable consumer confidence is.
The drop in retail sales would have to be put down to a combination of factors, from rising cost-of-living to stagnant wages. With consumers having to pay so much more for life’s necessities, something has to give and discretionary consumption is the most likely candidate. People are likely to spend only when their perception of economic stability outweighs the reality of their economic situation. If consumers feel even a modest chill in the economy, they immediately stop shopping.
The ramifications of this decline go far deeper than just retail sales. They threaten to spill over into the larger economy. Retail sales are the biggest motivator of the economy. In other words, if they keep falling, the businesses that rely on consumer spending will have to work that much harder to survive.
The Property Market’s Ongoing Struggles
Unsurprisingly, China’s property market remains a persistent thorn in the side of Chinese and foreign economists and policy makers. The YTD data shows a shocking drop-off in property investment, which plummeted by -13.9% YTD. Yet this prolonged recession hits the construction industry particularly hard. It erodes consumer confidence and undermines general economic stability.
The new home price index had a month-on-month decline of -0.41% and used homes were down -0.64%. As with other large cities, these decreases reflect a broader trend across the country. Through September, the deterioration only accelerated, according to China’s 70-city property price index. Retreat of the property market despite a relentless tide of bad news. Together these challenges are a peril to the economy, as real estate remains a key pillar of investment and consumption.
The government has made strong moves towards stabilizing the property market. They’ve lifted purchase restrictions and are providing upfront cash for developers. These efforts have not yet been reflected in a strong rebound, leading to doubts about the effectiveness of existing policy.