China's economy is losing momentum as weak domestic demand and a rapidly ageing population weigh on growth, signalling deeper structural challenges even as the country maintains around 5 per cent expansion in 2025 and early 2026, according to a report by Modern Diplomacy. The headline growth figure, analysts note, represents a clear deceleration from the double-digit rates China once recorded and the 6–8 per cent range seen in the previous decade.

Weak Household Spending at the Core

The most pressing concern flagged in the report is persistently subdued household consumption. "People are not buying enough to drive strong growth," the Modern Diplomacy report stated. This demand shortfall has made it increasingly difficult for China's economy to sustain its historic pace of expansion through internal engines alone.

External demand is also under strain. Exports, which historically underpinned China's economic rise, are slowing due to global uncertainty, geopolitical tensions, and rising trade barriers — particularly higher tariffs and restrictions imposed by the United States. Some manufacturing activity has shifted to alternative destinations in Southeast Asia, further eroding China's export base.

Demographic Pressures Tighten Labour Supply

China's demographic profile is undergoing a structural shift. According to the report, the country's population is both ageing and shrinking, leading to a steady decline in the working-age population. With labour supply tightening, productivity gains have become the primary driver of growth. However, productivity improvements have also slowed in recent years, raising questions about the sustainability of future expansion.

This demographic challenge is not a short-term cyclical problem — it represents a long-term structural constraint that policymakers have limited tools to reverse quickly.

Investment Fatigue and Shifting Trade Patterns

Investment, another traditional pillar of Chinese growth, has shown signs of fatigue. Fixed investment turned negative in 2025, reflecting weaker business sentiment and ongoing structural adjustments within the economy. The report noted that between 2012 and 2017, China's growth was supported by strong consumption, robust investment, and stable trade. From 2017 onwards, however, GDP growth weakened as domestic demand softened and export contributions declined.

Global supply chain realignments have compounded the pressure, with multinational firms diversifying production away from China toward countries such as Vietnam, India, and Mexico.

What China's Growth Outlook Depends On

Looking ahead, the Modern Diplomacy report said China's growth trajectory will depend heavily on its ability to boost productivity and offset the impact of a shrinking workforce. Slow progress in strengthening consumer demand remains a key risk to the outlook. Without a meaningful revival in household spending, China's economy could face a prolonged period of below-potential growth — a scenario with significant implications for global trade, commodity markets, and emerging economies, including India.