Executive Summary
- China’s economy is experiencing a deceleration in growth in the latter half of 2025, following strong performance earlier in the year, with a slowdown observed in retail sales and industrial output.
- The “intelligent economy” (AI, semiconductors, advanced manufacturing) and evolving consumer preferences, including “new consumption” and the “silver economy,” are providing some resilience and growth in specific sectors.
- To counteract the slowdowns in property and manufacturing, and boost domestic consumption, targeted government policies focusing on employment, social support, and reviving the wealth effect are deemed crucial.
The Story So Far
- China’s economy is currently navigating a period of decelerating growth, particularly in traditional sectors like manufacturing and property, which is exacerbated by global resistance to its exports. To counteract this slowdown and foster resilience, Beijing has strategically invested in its “intelligent economy” and is observing a shift in domestic consumption towards innovative products and services, including a burgeoning “silver economy.” However, policymakers are grappling with persistently low consumer sentiment and the significant impact of the property sector on household wealth, prompting a focus on targeted policies aimed at boosting employment and domestic demand to transition towards a sustainable, consumption-driven model.
Why This Matters
- Despite a broader economic deceleration, China’s strategic investments in the “intelligent economy” and evolving consumer preferences for domestic brands and elder-care services are providing some resilience, indicating a fundamental reorientation of its growth drivers. However, these positive trends are not fully offsetting challenges in traditional sectors and international trade, making targeted government policies crucial to stimulate domestic consumption, address property market issues, and ensure a sustainable, innovation-driven economic transition.
Who Thinks What?
- Analysts suggest that while China’s economy faces a slowdown, the intelligent economy and evolving consumer preferences provide resilience, but more targeted government policies are crucial to sustain momentum and address underlying challenges.
- Beijing and policymakers are strategically supporting the “intelligent economy” and implementing policies like the “trade-in policy,” while also focusing on improving employment, providing SME support, relaxing Hukou requirements, and indirectly supporting the stock market to boost consumption sentiment and revive the wealth effect.
- Millennials and Gen-Z consumers are driving “new consumption” by shifting preferences towards domestic products and services that blend tradition with modernity and digital technology, while the “ageing China” demographic is fostering new businesses in areas like smart home technology and elder care.
China’s economy is navigating a period of decelerating growth, with recent data indicating a slowdown following strong performance in the first half of 2025. Despite this, emerging trends in the “intelligent economy” and evolving consumer preferences are providing some resilience, though analysts suggest more targeted government policies will be crucial to sustain momentum and address underlying challenges.
Economic Performance and Slowdown
In the first half of 2025, China recorded 5.4% and 5.2% growth in its first two quarters, putting the nation on track to meet its 5% annual target. However, an August activity report highlighted a subsequent deceleration in retail sales and industrial output, signaling a broader slowdown.
Bright Spots: The Intelligent Economy
Beijing’s strategic support for its “intelligent economy,” encompassing artificial intelligence, semiconductors, and advanced manufacturing, has led to outperformance in the Information Technology and Business Services sectors since early 2024. This focus includes significant investments in industrial and humanoid robots, with China installing over half of the world’s industrial robots in the past three years.
Evolving Consumption Patterns
Retail sales saw modest growth in the first eight months of 2025, partly bolstered by China’s “trade-in policy” instituted in late 2024. This policy particularly benefited segments such as household appliances, furniture, communication, and office equipment.
Concurrently, a shift in consumer preferences among millennials and Gen-Z towards domestic products and services that blend tradition with modernity and utilize digital technology is driving “new consumption.” This trend has boosted brands like PopMart’s Labubu doll and tea house chain Chagee’s Chinese opera-inspired outlets, with PopMart demonstrating notable profit margins despite a stagnant overall consumer goods sector.
The “ageing China” demographic is also fostering new businesses in areas such as smart home technology, elder care services, financial pension plans, and specialized healthcare products. China’s “silver economy,” valued at an estimated $1 trillion in 2024, is projected by China’s State Council Information Office to reach $4 trillion by 2035.
Conversely, some government measures have negatively impacted consumption. China’s anti-extravagance mandates for officials, reaffirmed in May 2025, have affected the restaurant, liquor, and catering sectors from June onwards.
Challenges and Policy Responses
Despite the positive impacts from the intelligent economy and new consumption patterns, these have not fully offset the slowdowns observed in the manufacturing, construction, and property sectors. Growing international resistance to Chinese exports further emphasizes the necessity of boosting domestic consumption. Policymakers face challenges with stubbornly low consumption sentiment, diminishing monetary stimulus effectiveness, and reduced fiscal support.
To improve consumption sentiment, policymakers are focusing on employment, providing targeted support to small and medium enterprises (SMEs) to encourage hiring. Other considerations include social insurance subsidies, enhanced vocational training, and relaxing Hukou (residency permit) requirements for migrant workers to support lower-income consumption.
Reviving the wealth effect is also on the agenda, particularly given the property sector’s significant drag on household wealth, which accounts for 60% of the average Chinese householder’s assets. While a property market recovery may take years, regulators appear to be indirectly supporting a “slow bull market” to encourage onshore investors’ interest in Chinese equities.
Outlook
The transition to a sustainable, consumption-driven economy in China is a complex and potentially lengthy process. However, strategic investments in advanced industries, continuous innovation in products and services, and agile policymaking are seen as foundational elements for navigating future economic shifts, according to Manishi Raychaudhuri, founder and CEO of Emmer Capital Partners Ltd.
