China’s economy grew by 5.2% in 2023, 5.0% in 2024 and 5.0% again in 2025, below the 6-10% rates recorded through much of the 2010s but broadly in line with government targets. Growth is gradually moderating but remains above the global average of 3.5% in 2025. China’s economy is forecast to expand by 4.5% in 2026 and 4.0% in 2027. As growth slows to more manageable levels, the focus is shifting to higher-quality growth rather than rapid expansion. The economy is in a transitional phase, during which domestic consumption and services will increasingly drive growth rather than capital formation, heavy industry and exports. This transition, however, is ongoing and far from complete. Household consumption still accounts for only 40% of GDP, partly because of a legacy of export- and investment-led growth policy and significant government spending in key sectors, and partly because of structural issues and weak consumer confidence.

Consumer confidence remains fragile, with China experiencing deflationary episodes in 2023-2025. Nevertheless, China remains a massive and rapidly growing retail and industrial market, with the world’s largest e-commerce market and the second-largest total retail market after the U.S. Trade has remained resilient, with exports reaching a new record of USD 3.8 trillion in 2025, while imports stood at USD 2.6 trillion. Amid ongoing structural adjustments, the economy faces risks of a prolonged real estate slowdown, high debt levels (especially among SOEs and local governments), weak domestic demand, overcapacity in many industries, elevated youth unemployment and far-reaching demographic shifts. Successfully managing these risks over the next two to three years will be key to China’s long-term outlook.

The global geopolitical environment remains highly volatile, ranging from trade disputes and technological rivalry to military conflicts. China faces an increasingly adversarial landscape amid the geopolitical competition over trade, critical resources and political influence. But China’s role and importance in the unfolding world remains undisputed.

This edition of China Navigator features a special section on Digital China and AI, examining China’s rapid emergence as a major force in artificial intelligence (AI). China’s enormous digital population, expanding AI adoption, vast electricity infrastructure and industrial capabilities provide a distinctive foundation for AI development. At the same time, advances like DeepSeek have challenged assumptions about the costs and resources required to build competitive AI models. The feature examines China’s AI landscape from multiple perspectives, including digital connectivity, talent resources, infrastructure, semiconductors, investment, research and industrial deployment. It also compares China’s capabilities with those of the U.S., revealing substantial differences in their respective strengths. While China leads on several measures of scale and industrial capacity, the U.S. still has a commanding advantage in investment capital and corporate valuations. These developments create important opportunities and challenges as China emerges not only as an AI competitor, but also as a technology supplier, market and benchmark for cost and efficiency.

Getting China right matters more than ever for businesses worldwide and across industries. Businesses must understand China and be clear-eyed and strategic about how to integrate it into inbound or outbound supply chains, sell to Chinese consumers, draw on its technology, raise capital and attract investment. In China Navigator, ANDAMAN PARTNERS outlines and unpacks broad shifts and finer intricacies in China’s economic development and transition, as well as the challenges its economy faces in 2026 and beyond. We hope this overview provides navigation support and insights into the most consequential economy for global business in the 21st century.

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