China’s central bank recently decided to keep its loan prime rates unchanged. This marks the eighth straight month of stability, with the 1-year rate at 3% and the 5-year rate at 3.5%. The People’s Bank of China (PBOC) aims to provide targeted support to specific sectors instead of making broad policy changes.
Recent data shows that China’s economy is losing steam. In the final quarter of 2025, the economy grew by 4.5% year-on-year, the slowest growth since the end of strict COVID-19 measures in late 2022. Nominal GDP has remained below 4% for three years, hitting 3.8% in the last quarter. This is one of the lowest rates seen in half a century, excluding the pandemic year of 2020.
The retail sales growth dropped to a three-year low of 0.9% in December. Factors include a long-standing slump in the housing market, a tough job environment, and enduring deflation. The PBOC aims to revive household confidence by implementing “proactive fiscal policies” and a “moderately loose monetary policy.”
Economists at Nomura suggest that Beijing is increasingly worried about the significant slowdown in domestic demand. Last week, the PBOC lowered interest rates for specific monetary policy tools. They cut the 1-year rate for relending to agriculture and small businesses, encouraging banks to lend more to these sectors.
In addition, there’s a plan to create a dedicated lending program for private businesses and increase loans for tech innovations. The minimum down-payment for commercial mortgages will drop to 30% to help clear excess real estate inventory.
New bank loans fell to a seven-year low of 16.27 trillion yuan ($2.33 trillion) in 2025, according to Wind Information. This decline showcases weak borrowing demand and mounting pressure on the government for more stimulus.
Deputy Governor Zou Lan mentioned that there’s still room for further cuts in reserve requirements and policy rates. Banks’ net interest margins have stabilized, albeit lower than last year. The yuan has slightly appreciated due to a weaker dollar and easing tensions between the U.S. and China.
Goldman Sachs expects the PBOC to cut reserve requirements and policy rates early this year. Despite some challenges, China’s manufacturing and exports have remained strong. Industrial production grew by 5.9% in 2025, and exports increased by 5.5%, bringing the trade surplus to a record $1.2 trillion.
However, fixed-asset investments in urban areas fell by 3.8% last year, the first decline in decades, primarily due to a significant downturn in property investment.
While the situation appears challenging, there’s cautious optimism. If policies are effectively implemented, it may lead to a gradual recovery in the coming months. For a deeper dive into these economic trends, you can explore reports from Goldman Sachs and Nomura.
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