China
Why this matters
Section titled “Why this matters”China’s economy grew about 10% a year on average from 1990 to 2010 (see the chart), an extraordinary pace for such a large economy. It is now the world’s second-largest national economy, at $19.5 trillion in 2025 (World Bank). Because it builds so much, it buys huge amounts of raw materials, so when China slows, the countries that sell them feel it.
What drives it
Section titled “What drives it”China is production-led. Households spend only about 40% of GDP, the lowest share of the five (World Bank). Instead, growth has come from investment (factories, roads, apartments) and from exports. That model works while there is useful building left to do. It struggles once too much has been built.
The indicator to watch
Section titled “The indicator to watch”The annual GDP target, and credit. Each March the government sets a growth target, and for 2026 it is 4.5% to 5%, with a pledge to “strive for better in practice” (Chinese government). Investors also watch aggregate financing to the real economy, often called total social financing. It is the PBoC’s measure of all the financing the financial system gives to the real economy: loans, bonds and shares (PBoC). In a country where growth comes from investment, credit is the fuel.
How the People’s Bank of China operates
Section titled “How the People’s Bank of China operates”The People’s Bank of China (PBoC). By law it sets monetary policy “under the leadership of the State Council”, China’s cabinet (PBoC law), so it follows the government’s economic goals. That makes it the least independent of the five central banks in this section. The government’s 2026 inflation target is “around 2%” (Chinese government).
| Policy rate | The 7-day reverse repo rate, named the policy rate in July 2024 (PBoC) |
| Rates households and firms pay | The loan prime rate (LPR). A cut in the policy rate guides it down (PBoC) |
| Other tools | The reserve requirement ratio, the share of deposits banks must hold back, and medium-term lending to banks (BBVA Research) |
How the yearly agenda steers lending
Section titled “How the yearly agenda steers lending”China plans in a fixed yearly rhythm, and the banks and markets follow it. In December the Party leadership holds the Central Economic Work Conference to set priorities for the coming year. The one held on 10–11 December 2025 named expanding domestic demand, innovation (including AI), and boosting consumption and investment as priorities for 2026, and said monetary policy would stay “moderately loose” (Chinese government). In March the government turns those priorities into numbers in its Government Work Report: the 2026 report set the 4.5% to 5% growth target (Chinese government).
The PBoC then turns the agenda into credit. Instead of only moving one rate for the whole economy, it uses structural tools: cheap loans to banks (called relending) on the condition that the banks lend on to favoured sectors. The PBoC said in January 2026 that it would support domestic demand, technology and small firms, and steer credit to services consumption and elderly care (Chinese government). One report says the quota for its technology relending programme was raised from 800 billion to 1.2 trillion yuan, and that a 500 billion yuan programme covers services consumption and elderly care (Science and Technology Daily).
The latest update came on 12 August 2026. The PBoC said it would keep strengthening financial support for domestic demand, technological innovation and small and micro firms. By the end of June 2026, loans to the technology, green, inclusive finance, elderly care and digital economy sectors were all growing faster than total lending (Chinese government).
What the yearly goals looked like
Section titled “What the yearly goals looked like”China: the growth target vs actual growth, 2011–2026
Ranges are plotted at their midpoint (2016: 6.5–7%, 2019: 6–6.5%, 2026: 4.5–5%). 2021's target was 'over 6%'. No target was set for 2020 because of Covid-19, so that year has only an actual. Hover for values.
Data as of 2025 · Source: Government Work Reports (targets); World Bank (actual growth)The target has come down step by step, from 8% in 2011 to 4.5–5% in 2026. Actual growth stayed close to the goal in most years. The big gaps came in the Covid years: growth was 2.3% in 2020 when no target was set, rebounded to 8.6% in 2021 against a goal of “over 6%”, then fell to about 3.1% in 2022 against a goal of 5.5% (World Bank).
Where each year’s target comes from
For an investor this is the lens for China: ask which sectors the current agenda favours, because they get cheaper and easier credit, while sectors outside it get less of that support.
The numbers
Section titled “The numbers”China: growth, inflation and jobs since 1990
Yearly figures. Hover for values.
Data as of 2025 · Source: World Bank (unemployment is an ILO modelled estimate)Two things stand out. Inflation hit 24% in 1994, when the economy overheated. And since 2023 it has been close to zero (0.1% in 2025), far below the government’s goal. Prices that barely rise are a sign that demand is weak.
Real-world example: the property slump
Section titled “Real-world example: the property slump”Between 2010 and 2020, home prices in China’s 70 biggest cities rose nearly 60%. Since 2021 they have been falling (GAM Investments). The turning point was Evergrande, the world’s most indebted property developer, which missed bond payments and was declared in default in December 2021 (CNBC).
Homes make up about 70% of urban households’ assets, so falling prices made families feel poorer: they spent less and saved more (GAM Investments). That is a big reason why growth slowed and prices stopped rising.
Key takeaways
Section titled “Key takeaways”- China grew by investing and exporting. Households spend only about 40% of GDP.
- The central bank works under the government and follows the goals it sets every March.
- The property slump since 2021 has pushed inflation close to zero, the opposite problem to the US and Europe.