By Yixiao Zhou
China’s decision to set a reduced GDP growth target of 4.5–5.0% for 2026 marks another step in a long-running structural transition. Chinese policymakers have presented it not as a sign of economic weakness but as a deliberate pivot away from growth at all costs towards high-quality growth, with emphasis on productivity, technological upgrading and comprehensive development.
Trading partners face a China that is simultaneously slowing overall and becoming more competitive in selected industries. Investment has flowed into advanced manufacturing, clean energy and digital technologies. In sectors such as electric vehicles (EVs), batteries, and solar power, Chinese firms occupy leading positions in global markets. China also hosts the world’s largest stock of industrial robots and has accelerated deployment of AI applications in manufacturing, healthcare and logistics.
Yet total fixed asset investment fell 3.8% in 2025, dragged down by a 17.2% collapse in property investment. Even excluding property, fixed asset investment was down 0.5%.
Three structural headwinds — a spent reform dividend, a reversing demographic dividend and a weakening globalization dividend amid trade frictions — are well documented. Compounding these, the property sector remains depressed. Most forecasts place a sustained recovery no earlier than 2027.
The fiscal and confidence spillovers from the property slump — lower local government revenues, elevated household precautionary saving and suppressed consumer confidence — are likely to weigh on domestic demand through at least 2028. Whether China can successfully rebalance its economy will depend on whether it can channel high savings into broad-based, employment-generating activities, rather than concentrating investment in a small number of high-tech sectors that create relatively few jobs.
The causal link between the domestic transition and China’s changing external posture runs through three mechanisms. As construction-led growth fades, China’s import demand shifts from raw materials towards technological inputs and consumer goods, reorienting trade relationships accordingly.
With domestic demand still weak, Chinese firms seek overseas markets and production bases, intensifying export competition and outward investment. As strategic competition with the United States deepens, China is cultivating alternative economic relationships to reduce its vulnerabilities.
The share of exports destined for the United States fell from 19.2% in 2018 to 11% in 2025. Japan and the European Union also saw negative trade redirection, though on a smaller scale. Trade with emerging markets — including ASEAN, Latin America, Africa and Central Asia — has expanded more than 10% annually since 2021.
China and ASEAN have been each other’s largest trading partners for five consecutive years. Belt and Road Initiative (BRI) partner countries accounted for more than 50% of China’s total foreign trade for the first time in 2024. Chinese exports to Africa surged around 25% in the first eight months of 2025, led by Nigeria, South Africa and Egypt.
In outward investment, the BRI has entered a new phase with a shifting composition. Chinese companies’ BRI engagement has reportedly reached its highest level since the initiative launched in 2013, with construction deal values rising 81% and investment values rising 62% year-on-year in 2025.
The transport sector, including roads, railways and ports, fell to its lowest-ever share of BRI engagement at just 6.2% in 2025, from a peak of 28% in 2018. Energy, technology and manufacturing have grown rapidly. For host countries, this shift carries real consequences as digital platforms and industrial parks create different employment and technology transfers to roads and ports.
China continues to internationalize the Renminbi through multiple channels. The share of China’s cross-border trade in goods settled in Renminbi reached 28% in 2025. At this stage, for countries considering settling bilateral trade in Renminbi, the practical implication is lower transaction costs and reduced dollar exposure in trade with China, but limited ability to deploy Renminbi balances freely in third markets.
For countries that structured their strategies around a faster-growing Chinese economy that no longer exists, the implications differ significantly depending on how a country was positioned in relation to the old Chinese growth model.
For commodity exporters like Australia and Brazil that rode China’s construction-led super-cycle, the adjustment is structural. Demand for iron ore and base metals linked specifically to Chinese construction is unlikely to recover to its former levels. Fiscal and export revenue projections built on that demand need to be revised permanently. The opportunity for this group lies in critical minerals for green technology — lithium, cobalt, nickel and rare earths — where Chinese demand is growing.
For manufacturing-competitive economies such as Germany, Japan, South Korea, and increasingly Southeast Asian economies, the challenge is competition from Chinese firms in sectors such as EVs, batteries, and machinery, where Chinese cost advantages are eroding market share. For these economies, longer-term advantages will lie in product and service segments where quality, proximity and relationship depth matter more than cost.
For service and knowledge economies with strengths in education, healthcare, financial services and professional services, China’s transition creates genuine new demand.
An aging Chinese population, a more affluent middle class, and a technologically upgrading economy create expanding markets for precisely the services these economies produce. The policy priority is bilateral engagement on services liberalization.
China’s next phase will reward countries that understand where demand is slowing, where competition is increasing and where new opportunities are arising.
Yixiao Zhou is Associate Professor of Economics and Director of the China Economy Program at the Crawford School of Public Policy, The Australian National University. This column was originally published on East Asia Forum and re-published here using a Creative Commons Attribution-NonCommercial-NoDerivs 4.0 International license.
