China's GDP Growth Slows to 5.0% Amid Deflation and Trade Tensions

China's National Bureau of Statistics reported on October 15, 2025, that the country's Gross Domestic Product (GDP) grew by 5.0% in the third quarter of 2025, marking a slowdown from the 5.4% growth observed in the fourth quarter of 2024. This deceleration is attributed to persistent deflationary pressures, weak domestic demand, and escalating trade tensions with the United States.

The 5.0% GDP growth rate in Q3 2025 underscores the mounting challenges facing China's economy. Deflationary trends, evidenced by declines in both the Consumer Price Index (CPI) and Producer Price Index (PPI), coupled with subdued domestic demand and industrial overcapacity, have contributed to this slowdown. Additionally, renewed trade disputes with the United States, particularly over rare earth mineral exports, have further strained economic performance.

China's economy has experienced robust growth over the past decades, with average annual GDP growth rates around 6.0% leading up to 2025. However, recent quarters have shown a gradual deceleration, reflecting both internal structural challenges and external pressures. In Q2 2025, the economy grew by 5.2% year-on-year, down from 5.4% in the previous two quarters, marking the slowest pace since Q3 2024.

In September 2025, the CPI declined by 0.3% year-on-year, while the PPI fell by 2.3%, indicating persistent deflationary trends and reflecting weak domestic demand and industrial overcapacity. The decline in both CPI and PPI suggests subdued consumer spending and investment, critical drivers of economic growth. Overproduction in key industries has led to decreased profitability and increased competition, further dampening economic performance. Renewed trade disputes, particularly concerning China's restrictions on rare earth mineral exports, have strained international trade relations and added uncertainty to the economic outlook.

"China’s economy continues to suffer deflationary pressure as key price indicators slipped during the final quarter of 2024," noted a report from the Mercator Institute for China Studies. Despite the robust 1Q25 GDP, a downgrade to the full-year growth forecast is inevitable given the US-China tariff escalation, according to UOB Group.

The Chinese government may consider implementing fiscal and monetary policies to stimulate demand and address deflationary pressures. As the world's second-largest economy, China's slowdown could have ripple effects on global markets, affecting trade partners and international economic stability. Addressing industrial overcapacity and promoting innovation may be necessary to achieve sustainable long-term growth.

China's Q3 2025 GDP growth slowdown to 5.0% highlights the multifaceted challenges the nation faces, including deflationary pressures, weak domestic demand, industrial overcapacity, and escalating trade tensions. The government's response in the coming months will be crucial in determining the trajectory of the economy as it approaches the end of 2025.