China’s economy looks set to record its slowest growth in a year, with GDP expected to rise just 4.8% in the third quarter of 2025. Analysts say a slumping property sector, weak domestic demand, and renewed trade tensions with the U.S. have all contributed to the slowdown, prompting calls for Beijing to roll out further stimulus to maintain confidence and stability.
Despite earlier signs of resilience in exports and stock markets, China’s economic momentum is fading. The World’s second-largest economy is still grappling with structural imbalances, as its growth model remains heavily reliant on manufacturing and investment — key components of aggregate demand (AD) — rather than on household consumption.
This highlights the challenge of economic rebalancing. For decades, China’s rapid expansion has been driven by state-led spending on infrastructure and industry. But economists argue that sustainable, long-term growth will depend on shifting towards consumer-led demand, even if that transition brings short-term pain in the form of slower GDP growth.
Policymakers at the People’s Bank of China (PBOC) have so far adopted a cautious approach. After months of holding rates steady, analysts now expect small cuts to interest rates to stimulate borrowing and spending. Lower interest rates would, in theory, shift the AD curve to the right — encouraging investment (I) and consumption (C) — but they also risk fueling deflationary pressures if consumer confidence remains weak.
Meanwhile, rising U.S. tariffs threaten China’s export sector, potentially reducing net exports (X–M) and dragging down overall demand. The government has announced 500 billion yuan in financial tools and loan subsidies to counter this slowdown, though economists remain divided on whether these policies will be enough.
For students, China’s current challenge captures the essence of macroeconomic management: how to balance growth, inflation, and long-term structural reform in a complex global environment. Policymakers face a classic dilemma — stimulate too much and risk inflation, or do too little and watch growth falter further.
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