China’s economy appears to have deflected deep damage from President Trump’s tougher tariff policies.
The Commonwealth Bank’s just-released China Economic Update says China’s economy held up far better than expected in 2025.
The bank’s Chief Economist Luke Yeaman and Currency Strategist Carol Kong said earlier in 2025 the global growth outlook looked grim with the US-led trade war expected to hit major economies hard.
“However, since that time, growth expectations have been steadily upgraded,” they said.
The report said much of the focus had been on the stronger US economy, but China arguably faced even more headwinds than the US in 2025.
It was the key target of President Trump’s new tariff policies and its domestic economy continued to be weighed down by structural challenges.
These included its shrinking and rapidly ageing population, property sector deleveraging, weak consumer confidence, industrial overcapacity and deflationary pressures.
“Taking this together, it was reasonable to assume that China’s overall growth momentum would slow sharply in 2025,” the report said.
“In fact, China’s economy has held up better than expected. GDP grew by 1.2 percent, 1.0 percent and 1.1 percent per quarter over the first three quarters of 2025.
“Annual GDP growth was running at 4.8 percent in the September quarter 2025.”
The report said that 2025 confirmed “once and for all” that Beijing had abandoned the old “infrastructure-led stimulus playbook” and was willing to accept lower domestic growth provided longer-term strategic priorities were met.
These included “high quality development”, technology self-sufficiency and dominance in strategic technology and emerging “green” export markets.
The bank expected this two-speed dynamic to persist in 2026 with GDP growth slowing slightly to 4.5 percent.
“The largest risks to China’s economy are geopolitical,” the report said.
“The external strategic environment will continue to become more hostile to China, as Western de-risking accelerates; the US flexes its military muscles abroad; and pressure in the South China Sea grows.”
The full report is on the Commonwealth Bank website.
