China’s Growth Engine Stalls as Output Slows and Consumer Demand Weakens

China is approaching 2026 with mounting economic pressures, as new data point to a broad loss of momentum across key sectors. Factory output growth has fallen to a 15-month low, while retail sales have recorded their weakest performance since the country abruptly lifted its strict zero-COVID restrictions. Together, the figures underscore the growing urgency for new and more sustainable drivers of growth.

The slowdown comes amid three developments that have placed China’s economic trajectory under renewed scrutiny. The country posted a record trade surplus of $1 trillion in 2025, investment declined for a third consecutive month in November, and policymakers gathered at a key annual economic meeting to set priorities for the year ahead. While each reflects a different facet of the economy, collectively they highlight persistent structural imbalances.

The record trade surplus, although unprecedented, has raised concerns about overreliance on external demand. Production capacity has continued to expand even as domestic consumption and investment have lagged behind, contributing to overcapacity and intense price competition. At the same time, China’s export surge has drawn increasing criticism abroad, with fears growing that an influx of low-priced Chinese goods could undermine domestic industries in other economies.

Investment trends at home paint a similarly cautious picture. During the first eleven months of 2025, fixed-asset investment declined year on year, led by sharp contractions in real estate development and weaker infrastructure spending. The prolonged downturn in the property sector continues to weigh heavily on confidence, especially in an economy where housing has long been a central store of household wealth. Uncertainty surrounding policy direction and the economic outlook has also dampened private-sector investment.

International institutions have warned that these pressures reflect a deeper imbalance between strong supply and weak demand. They have urged China to accelerate its shift toward a consumption-led growth model, calling for stronger policy support to boost household spending, curb excessive savings, and reduce reliance on inefficient investment. Without such changes, external and domestic imbalances are likely to persist.

These challenges were openly acknowledged at China’s annual economic planning meeting, where officials emphasized the need to prioritize domestic demand, rein in excessive competition, and address risks in key sectors. While expressing confidence in the economy’s long-term resilience, policymakers also noted that changing global conditions and internal weaknesses are compounding the difficulties facing growth.

As industrial output cools and consumer spending falters, China faces a critical transition. The traditional engines of exports, property, and heavy investment are losing traction, leaving the country with limited room for complacency. How effectively policymakers respond to this slowdown may shape not only China’s economic performance in 2026, but also its influence on the global economy.