Stagnant Chinese Economy: Structural Distortion Has Deepened Further

Editorial

15:03 JST, January 21, 2026

With no end in sight to the prolonged real estate slump, an overreliance on exports has become increasingly apparent. It can be said that structural distortion in the Chinese economy has deepened further.

China’s gross domestic product for 2025 grew by 5.0% from a year earlier in real terms. This represents the same growth as in the previous year, meeting the government’s target for an expansion of “around 5.0%.”

However, the vicious cycle of sluggish consumption and intensifying deflationary pressures due to excessive competition is becoming severe.

The real estate slump became serious in 2021. In the Chinese economy, real estate, including related industries, accounts for a quarter of its GDP. A key feature is that the sector represents a significant portion of household assets and local governments rely on the sale of land use rights as a revenue source.

Therefore, a decline in real estate prices not only dampens consumption but also leads to reduced public works and a diminished appetite for corporate investment.

However, the Chinese government has failed to implement fundamental solutions that would also entail pain for property owners, including individuals and businesses.

Fixed asset investment, which indicates trends in public works and corporate capital expenditures, had been growing on a year-on-year basis for an extended period, but turned negative in 2025.

The government implemented consumption stimulus measures to encourage the replacement of automobiles and home appliances, but these measures lost momentum in the latter half of 2025. GDP growth for the October-December 2025 quarter slowed to 4.5%, down from 4.8% in the previous quarter.

The attempt by Chinese President Xi Jinping’s administration to overcome these difficulties by relying solely on external demand and exports is highly problematic.

China’s trade surplus last year surged by about 20% from a year earlier to $1.1889 trillion (about ¥190 trillion), surpassing the $1 trillion mark for the first time.

China’s strong competitiveness is undeniable in promising manufacturing sectors such as electric vehicles, solar panels and offshore wind power. However, a war of attrition known as “involution” — in which companies compete by slashing prices without regard to profits — is currently spreading. This can never be described as healthy.

Goods that are excessively produced are diverted to exports, only intensifying friction with other countries. China’s manufacturing sector is fundamentally supported by government subsidies, facing strong criticism for unfair competition. It is quite natural that dissatisfaction among other nations is growing.

In some respects, China may use its economic coercion through export restrictions against Japan as a vent for its domestic contradictions and a sense of stagnation. The decline in visitors to Japan is also likely a significant blow to Chinese travel agencies and related industries.

To develop into a mature economy, China needs to focus on reforming its social security system and implementing youth employment measures and to work to shift toward economic growth led by domestic demand and consumption.

(From The Yomiuri Shimbun, Jan. 21, 2026)