China's economy: a trade surplus beside prices that have stopped rising

What the economy was before reform

By one estimate China produced about a third of world output in 1820, when the industrial revolution was beginning in Britain. The century that followed reversed that. By the end of the civil war in 1949 commerce had collapsed, the currency was worthless and much of the economy had fallen back on barter; the retreating Nationalists had taken the country's gold, silver and dollar reserves to Taiwan.

From 1949 to 1978 the People's Republic ran a self-sufficient, state-led economy aimed at rapid industrialisation, with a good deal of market activity carried on underground. The People's Bank of China, which replaced the Central Bank of China in 1950, absorbed the private banks. The Great Leap Forward and the famine that followed it set the economy back by years.

What four decades of investment built

The World Bank's summary is that since 1978 China's GDP growth has averaged over 9% a year, lifting almost 800 million people out of extreme poverty and turning a low-income country into an upper-middle-income one. By 2020 extreme poverty had been eradicated; in 2024, 15.2% of the population still lived on less than $8.30 a day at 2021 purchasing power, the higher benchmark the Bank uses to compare countries.

The reforms began on the farms. Collective agriculture was phased out in the late 1970s and early 1980s in favour of a household responsibility system, and the reform then spread to price controls, fiscal decentralisation, the sale of state enterprises and the opening of the economy to foreign trade and investment. China joined the World Trade Organization in 2001.

The reforms had a cost in jobs. Twenty million people were unemployed in 1979 and 1980, and the restructuring of state enterprises in the 1990s dismantled the lifetime employment known as the iron rice bowl; the mass layoffs of that decade are remembered as xiagang. Unemployment eased after accession to the WTO.

Its relationship with the World Bank traces the same arc. China began borrowing from the Bank in 1980, graduated from the International Development Association, the Bank's fund for low-income countries, in 1999, and became a donor to it in 2007.

According to the National Bureau of Statistics, GDP in 2025 was 140,187.9 billion yuan, 5.0% more than in 2024. Industry contributed 35.6% of it, services 57.7% and agriculture 6.7%. Per capita GDP was 99,665 yuan.

The World Bank's prescription for the next stage is a shift from manufacturing to high-value services, from investment to consumption and from high to low carbon intensity, with productivity growth making up for diminishing returns to investment and a declining workforce. The government's own targets are framed as the Two Centenaries: a moderately prosperous society by 2021, the party's centenary, and a modern socialist country by 2049, the People's Republic's. The fourteenth five-year plan, for 2021 to 2025, emphasised consumption-driven growth and technological self-sufficiency.

Whether the official figures are right

The accuracy of Chinese growth statistics is itself disputed, in both directions. The Rhodium Group, a research firm, estimated actual growth in 2024 at 2.4 to 2.8% against an official figure of 4.8%. A study by the Brookings Institution using value-added tax data suggested growth was overstated by 1.7% a year between 2008 and 2016. In the other direction, a Federal Reserve Bank of San Francisco study found the official figures closely correlated with trade partners' import and export data, and research by the United States Federal Reserve in 2025 found them consistent with trade, consumption and property indicators.

What the factories make now

The statistics bureau's own measures show the higher-technology end of industry growing faster than industry as a whole, which grew 4.5% in 2025. That year the value added of equipment manufacturing grew 9.2% and made up 36.8% of large industrial firms' value added; high-tech manufacturing grew 9.4% and made up 17.1%. Output of new energy vehicles reached 16.524 million, 25.1% more than in 2024, and output of servers reached 5.970 million. Spending on research and development came to 3,926.2 billion yuan, or 2.80% of GDP.

Power generation shows the same shift. At the end of 2025 installed solar capacity was 1,201.73 million kilowatts, up 35.4% in a year, and wind capacity 640.01 million kilowatts, against 1,539.04 million kilowatts of thermal plant. Hydropower, nuclear, wind and solar generated 4,248.1 billion kilowatt-hours in 2025. Coal still supplied 51.4% of total energy consumption.

The World Bank's 2026 overview puts China's share of annual global carbon dioxide emissions at about a third and of greenhouse gas emissions at 30%, with emissions per head now above the European Union's. The government's stated goals are to peak carbon emissions before 2030 and reach carbon neutrality by 2060.

Agriculture remains large in absolute terms. Grain output in 2025 was 714.88 million tons, 1.2% more than in 2024, from 119.41 million hectares sown.

How much China sells abroad

Exports grew 6.1% in 2025 and imports 0.5%, so the surplus widened by 1,447.1 billion yuan in a year. Net exports added 1.6 percentage points to growth, against 2.6 points from consumption and 0.8 from investment.

The direction of trade has shifted with policy. Trade with countries along the Belt and Road reached 23,601.8 billion yuan in 2025, 51.9% of the total. Trade with the other members of the Regional Comprehensive Economic Partnership came to 13,850.3 billion yuan. Private enterprises accounted for 57.3% of all goods trade, and trade in services added 8,082.3 billion yuan. Foreign investment actually used in China fell 9.5% in 2025 to 747.7 billion yuan, while non-financial outbound direct investment rose 1.6% to 1,040.4 billion yuan. Foreign exchange reserves stood at 3,357.9 billion US dollars at the end of 2025, and the yuan averaged 7.1429 to the dollar over the year.

The currency is the renminbi, "the people's currency", denominated in yuan of 10 jiao or 100 fen and issued by the People's Bank of China. It floats within a managed band referenced to a basket of currencies, and the central bank retains decisive control over its value.

Why prices have stopped rising

Consumer prices rose 0.2% in 2024 and did not rise at all in 2025. Producer prices for industrial goods fell 2.2% in 2024 and 2.6% in 2025, and producer prices for farm products fell 3.7% in 2025. The prices industrial firms paid for their own inputs fell 3.0% the same year, a third producer measure to decline in 2025 beside the two above.

Housing is where the fall is sharpest. In December 2025 new-home prices fell month on month in 58 of the 70 large and medium-sized cities the bureau tracks, and second-hand home prices fell in all 70. Real estate is about 20% of the economy, property made up 60% of household assets in 2023, and 90% of urban households own their homes, and currency controls make most other investments harder to hold. The World Bank lists a protracted property downturn, subdued confidence and deflationary pressure from weak domestic demand among the economy's headwinds, and says the authorities have answered with fiscal stimulus and monetary easing.

Who owns the economy

The party describes the system as a socialist market economy and steers it through five-year plans; the fifteenth runs from 2026 to 2030. The state keeps control of what it calls the commanding heights, infrastructure, telecommunications and finance, through ownership and through party supervision of senior managers, whose appointments the party's Organization Department controls.

The private sector does most of the rest. It contributes about 60% of GDP, 80% of urban employment and 90% of new jobs, and state-owned enterprises generated about 40% of GDP in 2020. Most banks are state-owned, and the People's Bank of China and the Ministry of Finance, both under the State Council, are the main instruments of financial control.

The state also polices the largest private firms. Regulators fined Alibaba US$2.8 billion in 2021 after an antitrust investigation and ended their review of the group in August 2024. New businesses kept registering regardless: 25.74 million in 2025, about 26,000 a day. Hainan, the island province, began island-wide special customs operations as a free trade port in the same year.

Local governments carry much of the investment. Their officials are assessed largely on growth in their own jurisdictions, which pushes them towards large investment projects, and since the fiscal reform of 1994 they have relied on land sales and fees. The result is a recurring cycle. When the centre relaxes credit, local governments push investment through the firms they control and through incentives to outside investors; prices rise and inputs run short, as coal and electricity did in 2003; and the centre then tightens credit, halts unapproved projects and investment slows. Total government debt was about 94 trillion yuan in 2022, 77.1% of GDP, and estimates of local governments' off-the-books debt run as high as 63 trillion yuan.

Where the workers come from

China had 725.04 million people in work at the end of 2025, 65.6% of them in cities. 301.15 million were migrant workers, 180.06 million of them working away from their home areas. The 2020 census counted 492.76 million people living somewhere other than the place of their household registration.

Cities added 12.67 million new jobs in 2025, 0.11 million more than in 2024. The urban surveyed unemployment rate averaged 5.2% over the year and stood at 5.1% at its end. For people aged 16 to 24 the official rate peaked at 21.3% in mid-2023 before falling to 16.1% by November 2024. The World Bank names the ageing population as a constraint: a shrinking labour force is slowing growth while a growing number of older people may strain public finances. In 2025 there were 7.92 million births and 11.31 million deaths.

How the regions differ

The coast grew first. The Yangtze Delta, the Pearl River Delta and the Beijing-Tianjin-Hebei region are the three richest areas, and the eastern provinces produced just over half of GDP in 2025. The north-east, the old heavy-industry base of Heilongjiang, Jilin and Liaoning, grew most slowly.

Average incomes hide a wide spread. Per capita disposable income was 43,377 yuan nationally in 2025, with a median of 36,231 yuan; the fifth of households with the lowest incomes averaged 10,150 yuan and the fifth with the highest 103,778 yuan.

The gap between town and country is narrowing slowly. Urban households had a per capita disposable income of 56,502 yuan in 2025 and rural households 24,456 yuan, a ratio of 2.31, down 0.03 on 2024. Hong Kong and Macau keep their own capitalist systems under the principle of one country, two systems, separate from the mainland economy.