Beijing, October 20, 2025 — China’s economy grew 4.8% year-on-year in the third quarter, marking the slowest pace in a year as a deepening property slump and weakening business confidence weighed on growth momentum. The slowdown follows a 5.2% expansion in the second quarter, signaling that the world’s second-largest economy continues to struggle for a stable recovery.
Fixed-Asset Investment Contracts for the First Time Since 2020
In a rare and worrying sign, fixed-asset investment — which includes spending on infrastructure, manufacturing, and real estate — fell by 0.5% in the first nine months of 2025. The decline was far worse than analysts’ expectations for a 0.1% gain and represents the first contraction since the pandemic year of 2020, according to data from Wind Information.
“This drop is rare and alarming,” said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management. “The weakness in real estate investment may persist longer than previously anticipated, putting further downward pressure on fourth-quarter GDP growth.”
Property investment remained the biggest drag, plunging 13.9% in the year through September compared with a 12.9% decline in the first eight months. Analysts say the ongoing property crisis continues to erode consumer and investor confidence despite policy support measures.
Industrial Production Beats Expectations
While the investment picture darkened, China’s industrial output offered a bright spot, climbing 6.5% year-on-year in September, well above the 5% forecast and faster than August’s 5.2% gain. The rebound in factory activity suggests resilience in China’s manufacturing sector, especially as global demand for electronics, electric vehicles, and machinery stabilizes.
However, economists warn that industrial strength may not offset the broader slowdown. Excluding property, fixed-asset investment rose just 3% in the first three quarters, down from 4.2% in August, highlighting cooling activity even outside the real estate sector.
Private Sector Confidence Remains Fragile
Investment from the private sector, excluding real estate, rose 2.1% in the year through September, slowing from 3% in August. Analysts say this reflects businesses’ hesitation to commit new capital amid weak domestic demand and uncertainty about future policy direction.
“The weakness in private investment reflects a lack of confidence in both the economy’s growth prospects and in government policy support,” said Eswar Prasad, professor of economics at Cornell University.
Consumer Spending Shows Modest Growth
Consumer demand remained tepid. Retail sales grew 3% in September, matching forecasts but easing from August’s 3.4% pace. Analysts say household spending remains constrained by a sluggish property market and fading support from government subsidies for consumer goods.
Sales of home appliances, for instance, rose just 3.3% in September, a sharp slowdown from a 25.3% surge during the first three quarters of the year. “China cannot sustainably boost domestic demand without first stabilizing the housing market,” said Dan Wang, chief economist at Eurasia Group.
Disposable income for urban residents rose 4.5% in the first nine months of the year after adjusting for inflation, while rural incomes climbed 6%, according to the National Bureau of Statistics. The urban unemployment rate edged down to 5.2% in September from 5.3% in August.
Deflation Pressures Linger, Lending Rates Stay Unchanged
Inflation data painted a mixed picture. The core consumer price index (excluding food and energy) rose at its fastest pace since February, but headline inflation fell 0.3% year-on-year, missing expectations and underscoring persistent deflationary pressures.
Earlier this week, the People’s Bank of China (PBoC) kept its benchmark lending rates unchanged for the sixth consecutive month, leaving the one-year loan prime rate at 3% and the five-year rate at 3.5%. Analysts expect Beijing to continue prioritizing financial stability over aggressive monetary easing in the near term.
Policy Outlook: Balancing Growth and Reform
China’s top leadership convened this week to discuss economic and policy goals for the next five years, with an emphasis on shifting the economy toward domestic consumption and technological self-reliance amid rising U.S. trade tensions.
“China must step up efforts in technology development, but the traditional sectors — the so-called ‘old economy’ — will remain vital for years to come,” said Ting Lu, Chief China Economist at Nomura. “Beijing will likely need to clean up the property sector mess between 2026 and 2030.”
Real estate remains deeply intertwined with China’s broader economy — contributing around 18% of local government revenue and accounting for nearly half of household wealth, according to Lu. While new industries such as electric vehicles and renewable energy are expanding, economists caution that overinvestment in these sectors could become counterproductive if demand fails to keep up.
Outlook: Slower, Structural Growth Ahead
With property investment still falling, consumer sentiment weak, and deflationary forces persistent, economists expect China’s full-year 2025 growth to remain below the official target of around 5%. The coming months will test Beijing’s ability to stimulate demand without fueling debt risks, and to rebuild confidence in both private investment and household consumption.
As China navigates a slower but more balanced growth model, the real challenge lies in transitioning from investment-led expansion to sustainable, productivity-driven growth.