China's 5% GDP Growth Hides a Household Reality

Data Interpretation

Economic

Summary:

China’s 2025 GDP hit its 5% target, yet a critical disconnect emerges as growth benefits fail to reach average citizens.

China’s economy officially hit its target in 2025, with the National Bureau of Statistics reporting 5% GDP growth. While this figure marks a successful conclusion to the 14th Five-Year Plan on paper, it obscures a crucial disconnect: the benefits of this growth are increasingly failing to reach the average person.

For investors and policymakers, understanding this gap is key. The headline number masks the reality that sustaining China's economic expansion has become more expensive, while the dividends for ordinary households are shrinking.

The Widening Gap Between GDP and Paychecks

The divergence between macroeconomic data and household finances is now too significant to overlook. While the economy expanded by 5% in 2025, median per capita disposable income—a more accurate measure of what typical families earn—grew by only 4.4%. This represents a slowdown from the 5.1% increase recorded in the previous year.

The situation was even more challenging for urban residents, whose median income growth fell to just 3.7%, a notable drop from 4.6% in 2024. Although these percentage changes seem minor, they point to a fundamental weakness in the economic model: the system that once efficiently turned national growth into widespread prosperity is faltering.

This pattern can be described as "frictional growth"—an economy generating activity but delivering less forward momentum. While this doesn't signal a collapse, it suggests that growth is becoming a tool for maintenance rather than a driver of genuine expansion.

Why Companies Are Hoarding Cash, Not Hiring

The primary bottleneck is the corporate sector. In 2025, industrial profits saw a modest 0.6% increase, the first annual gain since 2021. This slight recovery only highlights how weak the post-pandemic rebound has been for Chinese businesses.

Adding to the pressure, producer prices fell for 39 consecutive months through December 2025, contracting by 2.6% over the full year. Faced with relentless price deflation, companies have responded logically by prioritizing survival. They are preserving cash, reducing debt, and minimizing risk instead of expanding payrolls or increasing wages.

This defensive stance turns businesses from channels of wealth distribution into centers of wealth retention. When companies focus on staying afloat rather than expanding, the gains seen in national accounts do not flow down to workers and consumers. As a result, macroeconomic statistics show growth, but the microeconomic reality for households remains stagnant.

Consumer Caution and the Surge in Savings

Households have reacted to this uncertainty with equal logic. Retail sales growth slowed dramatically through 2025, hitting just 0.9% year-on-year in December—the lowest rate since the end of 2022.

Instead of spending, people are saving. Household deposits surged by nearly 10% in 2025. A quarterly survey by the central bank in the third quarter of 2025 found that 62.3% of urban residents preferred saving over spending or investing, a significant increase from 58% in early 2023.

To be clear, consumer activity hasn't stopped entirely. Spending on services like culture, sports, and recreation has shown resilience with double-digit growth. However, households have clearly become more cautious, pulling back on big-ticket items such as cars and property-related goods.

Beijing's Plan to Fix the Transmission

China's leadership is aware of these structural problems. The Central Economic Work Conference in December 2025 made boosting domestic demand and household income a top priority. Officials called for:

• Implementing "urban-rural income growth plans."

• Expanding social safety nets.

The Finance Ministry has pledged that fiscal spending will "only increase" in 2026, signaling a commitment to deploy significant resources. Furthermore, repeated calls to combat "involution"—destructive, value-destroying price competition among firms—show that the government recognizes the damage caused by the current corporate environment.

However, acknowledging a problem is different from solving it. The core issues holding back consumption—such as wealth losses from falling property values, inadequate social insurance, and a soft labor market—require sustained, multi-year reforms. Temporary subsidies for consumer goods have produced only fleeting results, with retail sales growth dropping sharply after the stimulus effects wore off. The impulse to save won't reverse until households feel confident about their income security and asset values again.

Beyond the 5% Target: What Really Matters

The critical question for 2026 and beyond is whether Beijing can restructure its growth model before the current one becomes unsustainable. The immediate risk isn't a sudden GDP collapse, as authorities have plenty of tools to maintain headline figures. The deeper danger is that growth becomes a cost to be borne rather than a benefit to be shared.

When prosperity is purchased with larger fiscal deficits and persistent deflation, it ceases to be prosperity at all. For global observers, the metric to watch is no longer whether China can hit another 5% growth target, but whether it can restore the income channels that are essential for sustainable, long-term demand.

To stay updated on all economic events of today, please check out our Economic calendar

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James Riley

Middle East Situation

Political

Remarks of Officials

President Donald Trump announced on Thursday his plan to speak with Iran, a diplomatic overture that comes as the United States simultaneously dispatches another warship to the Middle East. The move highlights a dual strategy of potential engagement backed by a significant show of military force.

Speaking to reporters, Trump confirmed his intentions but did not provide details on the timing or nature of the dialogue, nor did he specify who would lead negotiations for Washington.

"I am planning on it, yeah," Trump stated when asked about discussions with Tehran. He immediately followed this by referencing the American military presence in the region, adding, "We have a lot of very big, very powerful ships sailing to Iran right now, and it would be great if we didn't have to use them."

Tensions Rise Amid Military Buildup

The backdrop for these developments is a period of soaring U.S.-Iranian tensions, which recently escalated following a bloody crackdown on widespread protests by Iran's clerical authorities. U.S. officials have indicated that Trump is reviewing his options but has not yet decided whether to authorize a military strike against Iran.

The protests, driven by economic hardship and political repression, have since subsided. However, Trump had previously threatened U.S. intervention if the Iranian government continued its violent suppression of demonstrators.

At a cabinet meeting, Trump asked Pentagon chief Pete Hegseth to comment on the situation. Hegseth affirmed the military's readiness to act on the president's orders.

"We will be prepared to deliver whatever this president expects of the War Department," Hegseth said, using the Trump administration's unofficial term for the Defense Department.

U.S. Red Lines on Nuclear Ambitions

Hegseth also issued a direct warning to Tehran regarding its nuclear program, a key point of contention. "They should not pursue nuclear capabilities," he stated.

President Trump has previously made it clear the United States would act if Iran resumed its nuclear program. This follows air strikes conducted by Israeli and U.S. forces in June on key Iranian nuclear installations, which were aimed at disrupting Tehran's progress.

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Gerik

Political

US Warning Casts Shadow Over UK China Outreach

U.S. President Donald Trump on Thursday reportedly cautioned the United Kingdom that it would be “very dangerous” to do business with China. The remarks followed announcements by London and Beijing outlining steps to rebuild relations after several years of tension. Trump made the comments when asked about the UK’s outreach to China during a public appearance in Washington, according to Reuters.

The warning adds political pressure to Britain’s current diplomatic direction. It reflects Washington’s continued skepticism toward Western allies expanding economic links with Beijing at a time when U.S. China relations remain confrontational.

Starmer’s Visit Signals A Strategic Reset

British Prime Minister Keir Starmer is on a four-day visit to China, marking the first trip by a UK leader in eight years. The visit follows a high-level meeting with Chinese President Xi Jinping and signals an effort to stabilize bilateral relations after disputes linked to security concerns, Hong Kong and allegations of espionage.

During the trip, China agreed to cut import tariffs on British whisky to 5% from 10% and confirmed visa-free travel for British nationals visiting China for up to 30 days, according to Downing Street. In parallel, British pharmaceutical group AstraZeneca said it would invest $15 billion in China through 2030. Starmer described the agreements as important access measures that symbolise the broader direction of the renewed relationship.

Starmer has been accompanied by a delegation of nearly 60 British business leaders and executives, underlining the commercial dimension of the visit and the government’s focus on trade and investment opportunities.

Washington’s Broader Message To Allies

Trump’s comments on the UK echo similar warnings directed at other U.S. allies. He said it would be “even more dangerous” for Canada to deepen business ties with China, despite Ottawa signing a trade agreement with Beijing earlier this month following a visit by Prime Minister Mark Carney. Trump has previously threatened to impose tariffs of up to 100% on Canadian goods if such cooperation moved forward.

These statements illustrate a wider U.S. stance that discourages allies from treating China as an alternative economic partner. The relationship between Trump’s rhetoric and allied policy choices is correlational rather than decisive, yet sustained pressure raises the strategic cost of engagement with Beijing.

Britain Seeks Balance Between Major Powers

Before traveling to China, Starmer said in an interview with Bloomberg that the UK would not be forced to choose between the United States and China. He emphasized that Britain intends to maintain close economic, security and defense ties with Washington while also strengthening commercial relations with Beijing.

This approach reflects a broader trend among middle powers attempting to diversify partnerships in response to uncertainty in U.S. foreign policy. In recent weeks, Beijing has hosted a series of Western leaders, including Ireland’s Prime Minister Michael Martin, Finland’s Prime Minister Petteri Orpo and South Korea’s President Lee Jae Myung, highlighting China’s active diplomatic outreach.

Strategic Risk And Economic Opportunity

The UK’s recalibration carries both opportunity and exposure. Improved access to the Chinese market offers tangible benefits for sectors such as pharmaceuticals, spirits and services. At the same time, Trump’s remarks underline the geopolitical sensitivity surrounding China engagement and the possibility of future friction with Washington.

For now, London appears committed to a pragmatic course that keeps channels open to both powers. Whether this balancing strategy proves sustainable will depend on how U.S. pressure evolves and how effectively economic gains from China justify the diplomatic complexity Britain now faces.

Source: CNBC

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Owen Li

Forex

Central Bank

Economic

Remarks of Officials

Bank of Korea (BOK) Governor Rhee Chang-yong has voiced significant concern over the Korean won's recent depreciation, stating that its fall has gone far beyond a reasonable level and could pose a risk to inflation.

Speaking at a Goldman Sachs conference in Hong Kong, Rhee admitted he was "really puzzled" by the currency's performance over the last two months. "Compared with the dollar index, we started to decouple in October and November," he noted, highlighting a divergence that has worried policymakers.

Figure 1: Bank of Korea Governor Rhee Chang-yong outlined his concerns over the Korean won's exchange rate and its potential impact on the national economy.

Anatomy of the Won's Recent Volatility

For months, the Korean won hovered near the key psychological level of 1,450 per U.S. dollar. Late last month, it weakened further, touching the 1,480 level amid broad dollar strength, geopolitical risks, and significant overseas securities investments by local investors.

In response, South Korean authorities issued strong verbal warnings and implemented a series of policy measures. These actions helped the currency regain some ground, pushing it back above the 1,430 won level.

A "Scarcity in Plenty" in the FX Market

Governor Rhee attributed the won's sharp decline to a phenomenon he described as "scarcity in plenty." He explained that while robust exports were bringing a strong inflow of dollars into the country, market participants were surprisingly reluctant to sell them in the spot market.

This hesitation has created an artificial shortage of dollars, putting downward pressure on the won despite healthy fundamentals.

The National Pension Service's Market Impact

A major factor, according to Rhee, is the overseas investment activity of the National Pension Service (NPS). He pointed out that the scale of the NPS's foreign investments has become very large relative to the size of South Korea's foreign exchange (FX) market.

This has effectively reinforced market expectations that the won will continue to weaken, encouraging even more overseas investment from individuals. Rhee was critical of the fund's strategy, stating, "The NPS' current FX hedging target is zero percent, and in my personal view as an economist, that does not make sense. The hedging ratio needs to be raised."

The governor did welcome a recent decision by the NPS to cut its overseas investment plan by half this year, a move expected to reduce dollar demand by at least US$20 billion. He confirmed that discussions are ongoing with the government and the pension fund to establish a new framework for managing its FX exposure.

Inflation Risks and Economic Outlook

The BOK is closely watching the exchange rate's effect on prices. Rhee warned that if the won remains in the 1,470-1,480 range for an extended period, the central bank may need to revise its inflation forecast upward. For now, inflation is projected to remain around 2% this year.

On the broader economy, Rhee identified several key growth drivers for the year, including:

• Exports of semiconductors, with strong momentum in chips related to artificial intelligence (AI)

• Defense products

• Automobiles

• Ships

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Gerik

Economic

Trump’s Warning Adds Pressure To UK-China Rapprochement

U.S. President Donald Trump on Thursday reportedly cautioned Britain that engaging economically with China would be “very dangerous,” injecting fresh tension into London’s efforts to rebuild ties with Beijing. His remarks came just as the UK and China signaled renewed momentum toward a long-term strategic partnership following a high-level meeting between Chinese President Xi Jinping and British Prime Minister Keir Starmer.

Speaking on the sidelines of a cultural event in Washington, Trump’s comments were widely interpreted as a warning shot aimed at allies seeking to rebalance relations with China at a time when U.S. foreign policy is becoming more unilateral and transactional. The statement does not directly alter UK policy, but it raises political and diplomatic costs for London as it navigates its reset strategy.

Starmer’s China Visit Signals Strategic Recalibration

Starmer is currently on a four-day visit to China, the first by a British prime minister in eight years, underscoring the significance of the diplomatic pivot. The trip reflects an effort to stabilize relations after years of mutual suspicion marked by espionage allegations, disputes over Hong Kong, and growing security concerns.

During the visit, China agreed to cut import tariffs on British whisky to 5% from 10% and confirmed visa-free travel for British nationals staying under 30 days. In parallel, British pharmaceutical giant AstraZeneca announced plans to invest $15 billion in China through 2030. These developments highlight the economic logic underpinning the reset, particularly for UK industries seeking access to China’s vast consumer and healthcare markets.

Starmer has emphasized that Britain does not see its China engagement as a zero-sum choice between Washington and Beijing. Before departing for Beijing, he said the UK could strengthen economic ties with China while maintaining close security, defense, and commercial relations with the United States.

US Skepticism Reflects Broader Strategic Anxiety

Trump’s warning appears driven less by specific UK policy choices and more by a broader U.S. concern that allies are hedging against American unpredictability by deepening ties with China. Similar rhetoric has been directed at Canada, where Trump has previously threatened punitive tariffs if Ottawa advances trade cooperation with Beijing.

This pattern suggests a correlation between U.S. pressure and the growing inclination of middle powers to diversify diplomatic and economic relationships. As U.S. policy becomes more confrontational and inward-looking, allies appear more willing to absorb political risk in exchange for strategic autonomy and economic opportunity.

China Positions Itself As An Alternative Partner

Beijing has actively welcomed Western leaders in recent weeks, including visits from Ireland, Finland, South Korea, and Canada. These engagements reinforce China’s effort to present itself as a stable and pragmatic economic partner amid global uncertainty.

For the UK, the appeal lies in both market access and geopolitical balance. While security concerns remain unresolved, the current outreach suggests London is prioritizing economic resilience and diplomatic flexibility over strict alignment.

A Delicate Balancing Act For London

Starmer’s strategy rests on the assumption that improved UK-China relations will not fundamentally undermine ties with Washington. Trump’s comments challenge that assumption by increasing the reputational and strategic risks of engagement with Beijing.

In practical terms, Trump’s remarks do not immediately change trade flows or investment decisions. Their impact is political rather than economic, shaping expectations about future U.S. responses. The relationship between these factors is correlational rather than deterministic, but sustained U.S. pressure could eventually influence how far the UK is willing to go in institutionalizing its China reset.

For now, London appears committed to keeping multiple doors open. Whether that balance can be maintained will depend on how aggressively Washington seeks to enforce loyalty and how effectively Beijing delivers tangible economic gains that justify the diplomatic friction.

Source: AP

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Nathaniel Wright

Data Interpretation

Bond

Economic

Central Bank

Political

Prime Minister Narendra Modi's upcoming budget is set to tackle India's most pressing economic challenges: creating jobs for millions of new workers while shielding the nation from global uncertainty and trade tensions. An analysis of economist expectations reveals a strategic focus on bolstering employment and stimulating growth.

According to a Bloomberg News survey of 29 economists, Finance Minister Nirmala Sitharaman is expected to prioritize measures that support job creation and drive economic expansion. Key policy levers will likely include increased spending on infrastructure like roads, ports, and railways, along with new export incentive schemes and reforms to the import-duty structure.

This government-led push is a direct response to a shaky global economic environment and lagging private investment. With the private sector's share of new investment hitting a decade low in the year ending March 2024, the government has stepped in to fill the gap. To sustain demand and protect incomes, it boosted its own capital spending by 30% during that period.

The High-Wire Act of Fiscal Consolidation

Even as it ramps up spending, the ruling party is expected to maintain its commitment to fiscal discipline. While new social programs may be announced in five states to secure popular support, the broader goal is to rein in debt and reduce the budget deficit.

Economists project Sitharaman will target a budget deficit of 4.2% of gross domestic product for the fiscal year starting in April, down from 4.4% in the current year. This aligns with a roadmap established in last year's budget to lower federal debt to around 50% of GDP by 2030-31.

Analysts at BofA note this framework allows for a gradual reduction in the deficit, which helps manage the high debt-servicing costs that accumulated during the COVID-19 pandemic. However, the current debt level remains a concern. The International Monetary Fund estimates India's general government debt rose to 81.29% of GDP by March 2024, up from 69% in 2015, largely due to pandemic-era borrowing.

Key Numbers Driving the 2025 Budget

Several critical figures will define the government's economic strategy and its potential for success.

Economic Growth and Revenue Targets

Economists forecast India's economy will grow between 6.5% and 7% in the next fiscal year, with inflation hovering near the central bank's 4% target. This implies a nominal GDP growth of 9.5% to 10.5%—a crucial assumption for projecting government revenue. The recently released Economic Survey offers a similar projection, pegging growth between 6.8% and 7.2%.

On the revenue side, the government faces significant challenges. Last year's tax cuts on goods, services, and personal income, designed to offset a 50% tariff shock from the U.S., have constrained revenue. The budget is expected to target net tax collections of 28.3 trillion rupees ($308 billion), supplemented by 500 billion rupees from disinvestment.

To meet existing targets, corporate and income tax collections must rise by 11.7% and 43% respectively in the final four months of the fiscal year, according to Radhika Rao at DBS Bank Ltd. The government is also counting on dividends from the Reserve Bank of India (RBI) and other financial institutions, with transfers expected to reach about 3.2 trillion rupees.

Capital Expenditure and Defense Spending

Capital expenditure (capex) will remain a central pillar of the budget. The government is likely to allocate approximately 12.04 trillion rupees for capex, equivalent to nearly 3% of GDP. However, some economists warn that the capacity to expand and execute massive infrastructure projects may be approaching a saturation point.

Defense-related capital spending is also projected to increase significantly, rising to 2.3 trillion rupees from 1.8 trillion rupees last year, reflecting heightened border tensions following the conflict with Pakistan in May.

Record Borrowing and Market Implications

To fund its spending plans while pursuing fiscal consolidation, the government is expected to engage in record bond borrowing. Economists anticipate gross market borrowing of 16.5 trillion rupees, with net borrowing at 11.6 trillion rupees.

This heavy borrowing schedule could pressure the RBI to support the market through secondary bond purchases, according to Citigroup Inc. economists. Market participants surveyed expect the 10-year government bond yield to settle around 6.7% by the end of December 2026.

To stay updated on all economic events of today, please check out our Economic calendar

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