China’s economy expanded at a sluggish pace of 2.5% to 3% in 2025, according to estimates by the Rhodium Group think tank, significantly below the government’s official growth target of around 5%. The slowdown has been primarily driven by a collapse in fixed-asset investment across the country, raising concerns about the long-term health of the world’s second-largest economy.

Fixed-Asset Investment Collapse Drives Slowdown

According to Rhodium Group, China’s fixed-asset investment, which includes spending on infrastructure, factories, housing, and transport, started the year relatively strong but sharply declined in the second half of 2025. Investment growth fell from 4.2% year-on-year in the first quarter to negative territory by mid-year, ultimately plummeting as much as 12.2% by October.

Even though officials reported that gross capital formation still contributed 0.9 percentage points to GDP growth in the third quarter, the Rhodium Group questioned the accuracy of these metrics, citing discrepancies in falling land sales and second-hand equipment purchases.

Official Data vs. Independent Estimates

Chinese authorities are expected to announce an official full-year growth figure of around 5% during the annual parliamentary session in March 2026. Officials are likely to highlight strong exports and government-led stimulus measures. However, Rhodium Group estimates indicate that approximately half a trillion dollars in domestic demand was lost, suggesting a significant gap between reported and actual economic activity.

The think tank also pointed out that persistent deflation, which China has experienced for ten consecutive quarters, makes it highly improbable that real GDP growth reached 5%. “History offers no examples of economies that have recorded 5% real GDP growth while facing years of persistent deflation,” the report noted.

Property Sector Dragging on the Economy

A major contributor to the slowdown has been China’s property sector, where investment dropped 15.9% between January and November 2025. This decline has impacted broader economic activity, including construction, related manufacturing, and urban development projects, further dampening growth momentum.

Outlook for 2026: Slower Growth Ahead

Looking ahead, Rhodium Group estimates that China’s GDP growth in 2026 will range between 1% and 2.5%, significantly lower than the International Monetary Fund’s projection of 4.5%. The think tank warned that unless investment activity rebounds sharply, the country could face prolonged economic stagnation, further complicating its trade negotiations and global competitiveness.

Implications for Global Economy and Trade

The underperformance of China’s economy has wider implications, given its critical role in global supply chains and trade. A slowdown could impact commodity markets, global manufacturing, and international trade flows, particularly amid ongoing tariff tensions with the United States.

Rhodium Group emphasized that persistent miscalculations in official Chinese economic data have consistently overstated growth, potentially misleading policymakers and global investors about the true state of the economy.