China’s economy sustained solid momentum in the third quarter of 2025, bringing year-to-date GDP growth to 5.2% year-on-year. Accommodative fiscal and monetary policies supported domestic consumption and investment, while demand from developing countries maintained export growth. However, households remained cautious in spending due to a soft labor market and declining home prices. Investment growth moderated in the third quarter, impacted by adjustments in the property sector and slower manufacturing and infrastructure investment amid profit pressures and tighter local government finances.
The World Bank’s latest China Economic Update, Advancing Reforms, Enhancing Prospects, estimates overall growth at 4.9% in 2025, with a projection of 4.4% in 2026, as ongoing challenges are expected to persist. Recent fiscal measures and relative stability in global trade policy are anticipated to support investment and exports. Mara Warwick, World Bank Division Director for China, Mongolia, and Korea, emphasized that future growth will rely more heavily on domestic demand, noting that structural reforms in social protection and a predictable business environment are key to boosting confidence and fostering sustainable growth.
Risks to the outlook remain broadly balanced. Continued challenges in the property sector, subdued earnings, labor market softness, and trade policy uncertainty could weigh on consumption and investment. On the other hand, stronger-than-expected fiscal spending, enhanced social protection measures, and decisive policy actions to stabilize the property market could lift growth above current projections.
The Update also explores the relationship between high household savings and consumption patterns. Nearly half of household savings are invested in housing, with about a quarter held in bank deposits. The preference for low-risk deposits is driven by precautionary saving needs, limited long-term financial products, falling home prices, and cautious income expectations. While these deposits provide low-cost financing, they may weaken price signals and hinder capital allocation in ways that do not optimally support productivity growth.
Elitza Mileva, World Bank Lead Economist for China, noted that non-bank financial institutions, such as private pension funds, life insurance companies, and mutual funds, could play a larger role in supporting household consumption. Enhancing capital market depth and transparency, and allowing market forces to guide financial decisions more effectively, could improve returns, reduce precautionary saving, and promote a rebalancing toward consumption.
