The World Bank’s economists did not provide a detailed explanation for the revision of the April forecast but highlighted the role of government intervention in bolstering China’s economic performance. In recent months, China has implemented a series of stimulus measures aimed at supporting growth, particularly in response to weaker-than-expected domestic consumption and a prolonged downturn in the real estate sector. These measures include targeted consumer trade-in schemes and increased fiscal support, which have helped stabilize the economy in the face of external pressures. However, the World Bank noted that the impact of such government assistance is expected to wane in 2026, potentially contributing to a slowdown in growth.
The backdrop to this forecast is a complex and evolving trade relationship between China and the United States. Earlier this year, trade tensions escalated significantly, with the U.S. imposing tariffs on Chinese imports that briefly exceeded 100% in April. Although a temporary trade truce has been in place since mid-November, current U.S. tariffs on Chinese goods remain high at 57.6%, more than double the rates at the beginning of 2024. These tariffs have disrupted trade flows and created uncertainty for businesses, prompting some Chinese exporters to seek alternative markets to offset the decline in U.S.-bound shipments.
Despite these challenges, China’s export sector has been a key driver of economic growth in 2025. Increased shipments to Southeast Asia and Europe have helped counterbalance the sharp drop in exports to the United States. Additionally, businesses have accelerated orders to preempt further tariff hikes, contributing to a surge in export activity. This export growth has been instrumental in mitigating domestic economic headwinds, including the ongoing real estate slump and subdued consumer spending, which have weighed heavily on China’s internal market. The real estate sector, once a cornerstone of China’s economic boom, continues to face structural challenges, with declining property values and reduced investment dampening overall economic sentiment.
To address sluggish retail sales, which have consistently fallen short of expectations, the Chinese government rolled out stimulus measures in late 2024 and has continued to implement targeted initiatives in 2025. These efforts include incentives to boost consumer spending, such as trade-in programs designed to encourage purchases of big-ticket items like appliances and vehicles. While these measures have provided some relief, the World Bank cautions that their effectiveness may be limited in the long term, particularly as external demand weakens and domestic challenges persist.
Looking ahead, the World Bank anticipates a deceleration in China’s economic growth, projecting a GDP increase of 4.2% for 2026. This slowdown is attributed to several factors, including a projected decline in export growth as global demand softens and trade barriers remain in place. Additionally, China’s economic development is expected to moderate compared to the rapid expansion of previous decades, reflecting a broader transition to a more sustainable growth model. To manage rising public debt levels, economists expect Beijing to scale back stimulus measures in the coming years, a move that could further temper growth but is seen as necessary to maintain fiscal stability.
The World Bank’s revised outlook for 2025 contrasts sharply with its earlier projections. In June, the institution had slashed its growth forecast for China to just 2.3%, citing heightened trade disputes as a primary concern. That figure would have represented the slowest economic expansion since 2008, excluding periods of global recession. The significant upward revision to 4.8% suggests a more resilient Chinese economy than previously anticipated, driven by a combination of export strength and government support. However, the challenges ahead remain formidable, with trade uncertainties, domestic structural issues, and the need for fiscal prudence all posing risks to sustained growth.
China’s ability to navigate these challenges will depend on a delicate balancing act. On one hand, the government must continue to support economic activity to counteract domestic weaknesses, particularly in real estate and consumer spending. On the other hand, it must avoid over-reliance on stimulus to prevent an unsustainable buildup of public debt. The export sector, while a bright spot in 2025, faces an uncertain future as global trade dynamics shift and protectionist policies gain traction in key markets like the United States.
The broader global context also plays a critical role in shaping China’s economic trajectory. The trade truce with the U.S., set to expire in mid-November, introduces uncertainty about the future of bilateral trade relations. A resumption of higher tariffs or new trade restrictions could further strain China’s export-driven growth model, forcing the country to rely more heavily on domestic demand. Meanwhile, competition in alternative markets like Southeast Asia and Europe is intensifying, as other countries vie for a share of global trade.
The World Bank’s updated forecast underscores the resilience of China’s economy in the face of significant headwinds, but it also highlights the fragility of its growth model. As the country transitions from a period of rapid, investment-driven expansion to a more balanced and sustainable trajectory, policymakers face the challenge of maintaining stability while addressing structural weaknesses. The real estate sector, in particular, remains a critical area of concern, with its downturn affecting not only economic growth but also consumer confidence and local government revenues.
In the near term, China’s ability to sustain export growth and implement effective domestic stimulus will be key to meeting the World Bank’s revised 4.8% growth forecast for 2025. However, the projected slowdown to 4.2% in 2026 serves as a reminder that long-term challenges, including demographic shifts, rising debt, and external pressures, will require careful management. For now, the upward revision offers a glimmer of optimism, suggesting that China’s economy is better positioned to weather the storm than previously thought. Yet, the path forward will demand strategic policymaking and adaptability in an increasingly complex global environment.
As the world watches China’s economic performance, the interplay between domestic reforms and international trade dynamics will shape not only the country’s future but also the broader global economy. With its significant influence on global markets, supply chains, and investment flows, China’s ability to sustain growth while addressing its challenges will have far-reaching implications. The World Bank’s latest forecast provides a cautiously optimistic outlook, but it also serves as a call to action for policymakers to navigate the uncertainties ahead with precision and foresight.
