Despite a slowing economy, China's central bank maintains benchmark lending rates, focusing on targeted support for specific sectors rather than broad policy easing. The People's Bank of China kept its 1-year and 5-year loan prime rates at 3% and 3.5%, respectively, unchanged for an eighth straight month. This decision comes as China's GDP growth slowed to 4.5% in the final quarter of 2025, the slowest pace since the reopening from stringent Covid curbs in late 2022. However, in nominal terms, GDP growth edged up to 3.8% year on year in the fourth quarter, with signs of deflation easing. Retail sales growth fell to a 3-year low of 0.9% in December, highlighting the impact of a prolonged housing slump and a bleak job market. Economists at Nomura expressed concern about one of the worst domestic demand slowdowns in this century. While the central bank lowered interest rates on structural monetary policy tools last week, it still plans to set up a dedicated relending program for private firms and increase quotas for tech innovation loans. Despite this, new bank loans shrank to 16.27 trillion yuan in 2025, underscoring sluggish borrowing demand. Fixed-asset investment in urban areas declined 3.8% in the year, the first annual decline in decades, due to a deepening slump in property investment and efforts to curb local debt risks and excess capacity in some industries. China's manufacturing and exports have held up well, with industrial production rising 5.9% and exports climbing 5.5%, contributing to a record trade surplus of over $1.2 trillion.
