China’s Economic Momentum Slows Amid Weak Domestic Demand and Demographic Challenges: Report
BEIJING — China’s economy is facing persistent structural headwinds, losing momentum as weak domestic consumption and a rapidly ageing population weigh heavily on its growth trajectory. According to a recent report by Modern Diplomacy, while Beijing has maintained an expansion rate of around 5 per cent through 2025 and early 2026, the underlying indicators point to deepening systemic challenges.
The current headline growth figure underscores a stark departure from the country’s historic double-digit expansion and the robust 6–8 per cent growth range that characterised the previous decade. Between 2012 and 2017, the Chinese economy was buoyed by strong consumption, solid investment, and stable global trade. However, since 2017, gross domestic product (GDP) growth has steadily softened, reflecting a decline in domestic demand and a diminishing contribution from exports.
The Modern Diplomacy report identifies persistently weak household spending as the most critical vulnerability facing the world's second-largest economy. “People are not buying enough to drive strong growth,” the assessment noted, highlighting a cautious consumer base hesitant to spend amid broader economic uncertainties and an unstable property market.
Simultaneously, China's shifting demographic profile is exacerbating the economic strain. The nation’s population is not only ageing rapidly but also shrinking outright, leading to a steady contraction of the working-age demographic. With the labour supply tightening, the economy has increasingly relied on productivity gains as its primary engine for growth. However, the pace of productivity improvement has also decelerated in recent years, raising concerns among economists about the sustainability of future economic expansion.
Investment, traditionally a cornerstone of the Chinese economic model, is also showing significant signs of fatigue. Fixed investment turned negative in 2025, a trend attributed to deteriorating business sentiment and ongoing structural adjustments within the domestic economy.
Externally, the traditional export engine is under severe pressure. Global geopolitical uncertainties, rising trade barriers, and higher tariffs—particularly from the United States—have significantly impacted China's export competitiveness. Furthermore, shifting global supply chains have prompted the relocation of some manufacturing activities to alternative hubs in Southeast Asia, further dampening external demand.
Looking ahead, the report concludes that China’s medium-term growth outlook will depend heavily on Beijing’s capacity to accelerate productivity and offset the adverse effects of a shrinking workforce. Nevertheless, the sluggish progress in stimulating consumer demand remains the primary downside risk to the nation's economic stability.
Our Final Thoughts
The findings of the Modern Diplomacy report crystallise what global economists have warned about for years: China's transition from an export- and investment-led model to a consumption-driven economy is fraught with friction. The intersection of demographic decline and shifting global trade dynamics presents an unprecedented challenge for policymakers in Beijing. Meaningful structural reforms, rather than temporary stimulus measures, will be essential to stabilise the country's long-term economic trajectory and restore consumer confidence.