Chinese GDP per capita has been rapidly catching up, but there is still some way to reach the level of the most advanced countries. China’s population is ageing. With the working-age population falling for more than a decade, growth has been driven by capital accumulation and increasingly by total factor productivity. However, despite very high investment rates, the capital stock is still modest in per capita terms. The unemployment rate is low, but only refers to urban areas, while in the countryside there remains significant underemployment.

Structural reforms could lift the growth potential and ensure a gradual slowing of growth as China is converging to the most advanced countries over the medium- to long term, mitigating the impact of unfavourable demographics. Abolishing administrative monopolies, providing equal chances for private enterprises and further tackling corruption would help to improve the allocation of resources and boost productivity. Reforms to strengthen the social safety net would help reduce the savings rate and achieve a more balanced growth model.

Economic growth will remain unchanged from 2024 at 5% in 2025 and weaken to 4.4% in 2026 and 4.3% in 2027. Consumption will be dampened by high precautionary savings and the payback effect of the trade-in programme that had led to front-loading of purchases of durable goods to benefit from lower prices. Real estate investment will continue to contract, and prices fall as excess capacity is worked off. The antiinvolution campaign, aiming at addressing high competition and excess capacity, is expected to weigh on business investment, but infrastructure investment should pick up with the new Five-Year Plan. Exports will be constrained by the US tariff increase. Anti-involution policies will likely help CPI inflation to remain positive and contain the fall of producer prices. The main risks stem from trade uncertainties and how overcapacity is managed, while reforms and new projects could invigorate private investment more strongly.

Monetary policy remains supportive, though the scope for further rate cuts is limited as they hurt bank profitability amidst asset quality concerns. Fiscal policies have become more supportive in 2025 with the deficit target increased by a percentage point of GDP. Wide-ranging reforms are needed to ensure sufficient competition in all industries, reduce the regulatory burden and strengthen market access for private companies and strengthen social protection.