Despite a slowing economy, China's central bank has decided to maintain its benchmark lending rates, focusing on targeted support for specific sectors rather than broad policy easing. This decision comes as the world's second-largest economy lost momentum in the final quarter of 2025, growing at the slowest pace since the reopening from stringent COVID-19 restrictions in late 2022. While nominal GDP growth edged up to 3.8% year-on-year in the fourth quarter, deflation showed signs of easing, with the GDP deflator narrowing to minus 0.9%. However, retail sales growth fell to a 3-year low of 0.9% in December, indicating a battered household confidence due to a prolonged housing slump, a bleak job market, and entrenched deflation. Economists at Nomura expressed concern about one of the worst domestic demand slowdowns in this century. The central bank recently lowered interest rates on structural monetary policy tools, reducing the 1-year rate for various relending facilities. It also plans to set up a dedicated relending program for private firms and increase quotas for tech innovation loans. Despite these measures, new bank loans shrank to 16.27 trillion yuan in 2025, highlighting sluggish borrowing demand and increasing pressure on the government to provide more stimulus. Fixed-asset investment in urban areas declined by 3.8%, marking the first annual decline in decades, due to a deepening slump in property investment and Beijing's efforts to curb local debt risks and excess capacity in some industries. China's manufacturing and exports have remained resilient, with industrial production rising 5.9% for the entire year of 2025 and exports climbing 5.5%, resulting in a record trade surplus of over $1.2 trillion.
