China’s economy grew 4.8% year-on-year in the third quarter, marking its slowest expansion in a year, though broadly in line with market expectations. The world’s second-largest economy continues to grapple with a prolonged real estate slump, weakening investment confidence, and sluggish consumer spending.
Fixed-Asset Investment Contracts for the First Time Since 2020
A key concern in the latest data is the unexpected contraction in fixed-asset investment, which includes spending on real estate, infrastructure, and manufacturing. Investment fell 0.5% in the first nine months of 2025, defying analysts’ expectations for a slight increase of 0.1%, according to a Reuters poll.
This marks the first decline since 2020, when the COVID-19 pandemic first hit China’s economy.
“The drop in fixed-asset investment is rare and alarming,” said Zhiwei Zhang, President and Chief Economist at Pinpoint Asset Management. “It suggests that fourth-quarter GDP growth faces downward pressure.”
Property investment was the main drag, plunging 13.9% year-on-year through September, compared to a 12.9% decline in the first eight months.
“Weakness in real estate investment may persist for a longer period than previously anticipated,” said Bruce Pang, Adjunct Associate Professor at CUHK Business School. “This could represent a structural shift—investment levels may never return to their previous highs.”
Industrial Output Offers a Silver Lining
Amid the gloom, industrial production rose 6.5% in September, surpassing expectations of 5% and improving from August’s 5.2% growth. The manufacturing and export sectors remain relatively stable, providing a buffer against the property downturn.
However, when excluding property, fixed-asset investment for the first three quarters rose only 3%, down from 4.2% in August. Private sector investment also weakened, rising just 2.1% compared to 3% previously.
“The weakness in investment spending, especially from the private sector, reflects a lack of confidence in the economy’s outlook and the government’s policy measures,” said Eswar Prasad, Professor of Economics at Cornell University.
Consumer Spending Remains Modest
Retail sales increased 3% year-on-year in September, matching forecasts but indicating a slowdown from August’s 3.4% growth. The cooling consumer activity reflects waning momentum from earlier government subsidy programs.
Sales of home appliances, once buoyed by a stimulus plan, grew only 3.3% in September, a sharp contrast to the 25.3% surge recorded for the first three quarters of the year.
“It’s difficult to boost domestic demand without first stabilizing the housing market,” said Dan Wang of Eurasia Group, speaking on CNBC’s Squawk Box Asia.
China’s National Bureau of Statistics (NBS) reported that disposable income rose 4.5% for urban residents and 6% for rural residents in real terms. The urban unemployment rate edged down to 5.2%, from 5.3% in August.
Deflationary Pressures and Monetary Stability
Inflation data continues to highlight mixed trends. The core consumer price index (CPI)—excluding food and energy—rose at its fastest pace since February 2024, signaling some improvement in underlying demand. Yet, headline inflation fell 0.3%, missing forecasts and underscoring persistent deflationary pressure in the broader economy.
To maintain stability, the People’s Bank of China (PBOC) held its benchmark lending rates unchanged for the sixth consecutive month. The one-year loan prime rate remains at 3%, while the five-year rate, closely tied to mortgage lending, stays at 3.5%.
Exports Show Resilience Despite Global Tensions
Official September data revealed continued strength in exports, even amid ongoing trade tensions with the United States. Analysts say that robust global demand for Chinese electronics and machinery has cushioned the impact of domestic weakness.
Outlook: Structural Challenges Ahead
Economists warn that China’s growth trajectory may face further headwinds in the final quarter of 2025, as the property downturn continues to weigh heavily on investment and consumer sentiment.
“This is more than a cyclical slowdown—it’s a structural realignment,” Pang noted. “China must find ways to boost investment from other sectors, such as green technology and advanced manufacturing, to fill the gap left by the housing market.”
Despite short-term resilience in exports and industrial output, China’s overall economic momentum remains fragile. The government faces the dual challenge of stabilizing real estate while restoring confidence among private investors and consumers.