On January 26, the Finance Institute of the Chinese Academy of Social Sciences (hereinafter referred to as "CASS Finance Institute") convened the release and seminar for the China Macro-Financial Analysis for the fourth quarter of 2025. The report presented at the meeting offered a comprehensive interpretation of China's macroeconomic and financial situation for Q4 and the full year 2025, while also putting forward targeted suggestions for China's economic development path in 2026.

As 2025 concluded, the Chinese economy delivered a performance marked by stability and progress amidst a complex and ever-changing global environment. The annual GDP surpassed the 140 trillion yuan threshold for the first time, successfully achieving the 5.0% growth target and providing a successful conclusion to the "14th Five-Year Plan." The global economy in 2025 persistently advanced amid a tussle between "resilience" and "divergence." The United States achieved a strong rebound driven by both consumption and AI investment; the EU's economic recovery remained weak, with growth lingering at low levels; while Japan's economy unexpectedly experienced a quarterly contraction. Inflation trends and monetary policies showed even more pronounced divergence, with the US, Europe, and Japan pursuing different policy directions. The Trump administration's unilateral tariff policies also triggered severe turbulence in global financial markets, presenting multiple challenges for China's economic operations. Confronted with intertwined internal and external pressures, China implemented more proactive and effective macroeconomic policies to steer the economy towards new and superior development paths. Although the pains of transition, such as slowing growth in traditional industries and persistent imbalances between supply and demand, had not yet dissipated, bright spots like supply-side optimization and the rise of new growth drivers continued to emerge. A series of pragmatic fiscal and financial policies were deployed with precision, both providing a floor for current growth stabilization and accumulating momentum for a better and more innovative economic performance in the coming year. Currently, a series of combined policy measures are poised for action. Regarding future policy direction, the CASS Finance Institute recommends that fiscal-financial coordination become the core lever for expanding domestic demand. On the consumption front, demand will be stimulated by optimizing loan subsidy policies and exploring the distribution of digital consumption vouchers. On the investment front, mechanisms like special guarantees and risk-sharing will be used to invigorate private sector vitality. Simultaneously, high-quality urban renewal should be leveraged as a key initiative, innovating investment and financing models to promote a steady recovery in investment. Furthermore, the report suggests accelerating the repair of microeconomic entities' balance sheets by issuing additional government bonds, improving the social security system, and establishing special relending facilities for clearing arrears, thereby solidifying the foundation for economic development. Traditional investment growth is slowing, while new growth drivers are gaining substantial momentum. The CASS Finance Institute report indicates that supply-demand relations improved in some sectors of the Chinese economy in 2025, with prices recovering modestly but still operating at low levels; the contradiction of strong supply versus weak demand remains prominent. Currently in a critical period of transitioning between old and new growth drivers, growth in commodity retail, traditional real estate, and infrastructure investment has slowed. However, new growth drivers such as service consumption and investment in high-tech industries are accumulating strength, which is conducive to enhancing the economy's upward momentum. During this critical phase of economic transformation, the iterative replacement of old and new growth drivers has become the most distinct characteristic of China's economy. Supply-side optimization and upgrading have yielded significant results. Since July 2025, multiple ministries and commissions, through research forums and industry association initiatives, have promoted "anti-involution" in sectors like photovoltaics, new energy vehicles, and internet platforms, effectively boosting manufacturing sentiment. The manufacturing PMI production index rose to 51.7%, indicating expansion, while the new orders index returned to expansion territory after six months. The non-manufacturing business activity index also edged up 0.2 percentage points month-on-month to 49.7%, showing a slight improvement in sentiment. Price recovery in upstream industries was also notable. Driven by measures like capacity management and regulating price competition, the year-on-year decline in the PPI for upstream mining and raw materials industries in December 2025 narrowed by 9.3 and 2.8 percentage points respectively compared to July. This contributed to profits of industrial enterprises above the designated size maintaining positive growth for four consecutive months, alleviating the dilemma of enterprises experiencing "increased revenue without increased profits." However, the fundamental contradiction of strong supply and weak demand remains unresolved, with the pass-through effect of PPI improvement to CPI weakening. In the fourth quarter, the CPI merely turned positive year-on-year and expanded slightly to 0.8%, while the core CPI remained stable at 1.2%. In response, the State Council executive meeting on January 9, 2026, deployed a package of fiscal and financial policies to synergistically boost domestic demand, focusing on steadily raising the economy's "temperature." The trend of structural optimization on the demand side is also becoming increasingly clear. The consumer market exhibits a pattern of "weak goods, strong services." The year-on-year growth rate of total retail sales of consumer goods slowed to 0.9% in the second half of 2025, with durable goods consumption like home appliances and automobiles turning negative due to the earlier release of pent-up demand. In contrast, service consumption demonstrated stronger resilience. Service retail sales grew 5.5% year-on-year, rising for the fourth consecutive month and outpacing goods retail sales, primarily supported by new business forms like culture, sports, and online media. Although the investment sector slowed overall, high-tech industries bucked the trend. Investment in information services, and aerospace and equipment manufacturing grew by 28.4% and 16.9% year-on-year respectively, injecting new vitality into economic growth. Policy is set to shift towards "emphasizing both counter-cyclical and cross-cyclical adjustments." Looking ahead to 2026, the International Monetary Fund (IMF) forecasts that global economic growth is expected to hold steady at 3.3%, an upward revision of 0.2 percentage points from its October forecast last year. The IMF pointed out that the economies of China and the US, AI investment, and "dual-easing" policies will constitute the main supports for global growth. However, economic divergence, policy uncertainty, and geopolitical risks continue to exert downward pressure on global development. Notably, 2026 may present a window for phased easing in China-US economic and trade relations. G20 and APEC meetings provide important platforms for high-level communication, and domestic political cycle factors in the US, with the Trump administration facing midterm election pressures, may also encourage it to seek stability in economic and trade relations with China. Against this backdrop, the CASS Finance Institute stated that China's economic policy orientation is shifting from "extraordinary counter-cyclical adjustment" to "emphasizing both counter-cyclical and cross-cyclical adjustments." This approach reserves policy space to address changes in China-US interest rate differentials, balances the dynamic equilibrium between stabilizing growth and preventing risks, and places greater emphasis on coordinating short-term demand management with medium- to long-term structural reforms. In fact, a series of precisely targeted policy measures are already prepared, ready to fully safeguard economic growth stabilization in 2026. Fiscal-financial coordination will be the core lever for expanding domestic demand. On the consumption front, multiple departments recently jointly issued a package of policies for fiscal-financial coordination to boost domestic demand, aiming to vigorously stimulate consumption by optimizing subsidies for personal consumption loans and loans to service sector businesses. Considering the limited beneficiary groups for consumer loan subsidies, the CASS Finance Institute recommends precisely distributing digital consumption vouchers with restricted validity periods to groups such as urban and rural residents receiving subsistence allowances and extreme poverty assistance, individuals facing long-term employment difficulties, and salaried workers with monthly incomes below the personal income tax threshold, thereby unleashing the consumption potential of low- and middle-income groups. On the investment front, policies including subsidies for loans to SMEs, a special guarantee plan for private investment, and a risk-sharing mechanism for corporate bonds issued by private enterprises will be implemented to stimulate private investment. Considering the current capital status of government-financed guarantee institutions, the CASS Finance Institute suggests exploring the inclusion of capital injections into these institutions within the scope of support from ultra-long-term special government bonds and local government special bonds to alleviate the financial pressure on local governments. Simultaneously, the CASS Finance Institute recommends leveraging high-quality urban renewal as a key initiative. By revitalizing housing provident funds and encouraging participation from residents and private capital, it suggests exploring a model of "early-stage investment fund-ization, mid-stage construction credit-ization, and late-stage operation securitization" to help investment bottom out and stabilize. Furthermore, the report recommends innovating macroeconomic governance thinking to accelerate the repair of microeconomic entities' balance sheets. For example, the central government could utilize the current low-interest-rate window to issue additional government bonds, expanding fiscal expenditure and directing it towards low- and middle-income groups and service sector businesses. It also suggests accelerating the implementation of plans to increase urban and rural residents' incomes, improving the social security system, and establishing special relending facilities for clearing arrears to specifically support the clearance of overdue payments to enterprises and ensure wage payments for migrant workers, thereby comprehensively solidifying the foundation for economic development.