With a shrinking population, China needs new drivers of growth. Consumer spending has yet to fill the gap

China’s latest national accounts show the economy grew by about 5% through 2025 and into the first quarter of 2026, pointing to resilience despite ongoing trade tensions.

But the underlying picture is weaker: growth slowed last year and, while it has stabilised, it remains below pre-COVID levels.

China used to regularly report GDP growth rates above 10% before 2010 and around 6-8% after 2010. So, what’s behind the slowdown from those growth rates?

Weak consumption, uncertain exports

Household spending growth remains modest, while exports are growing more slowly amid global uncertainty and the Iran war.

Together, these trends point to softer growth, weak domestic demand and more fragile external support.

China has long been seen as an economy needing to shift from heavy reliance on exports and investment spending towards stronger domestic demand.

To understand whether this shift is actually happening and whether these recent patterns are temporary, or part of a deeper shift, we examined what has been driving China’s growth over the past decade or so. Our results do not suggest that consumer spending has yet become a stronger supporter of China’s growth.

A shift in the drivers of growth

In a recent paper, we compare the sources of growth across two periods: 2012–2017 and 2017–2022.

From 2012 to 2017, China’s growth was relatively strong, with real gross domestic product (GDP) rising by more than 40%, supported by solid consumption, robust investment and steady trade expansion.

Between 2017 and 2022, however, the picture weakened: GDP grew by about 30% – one quarter less than in the earlier period. While the pandemic played a role, trade tensions and deeper structural changes were also important, with slower import growth, weaker domestic demand, and a smaller contribution from exports.

At the same time, demographic trends turned less favourable, with slower population growth, fewer working-age people, and falling labour force participation and employment rates, all of which added further downward pressure on growth.

What has caused this change?

The charts above show a clear shift in China’s growth pattern after 2017. To understand why, we used an economy-wide model to identify the main drivers of growth in each period.

In both periods, productivity was the biggest contributor to China’s growth. But before 2017, foreign demand, a shift towards domestic sourcing and stronger business investment all supported growth. Together, these factors generated relatively balanced expansion.

After 2017, the picture became less favourable. The contribution from foreign demand fell, although it remained positive. The contribution from domestic consumption growth also turned slightly negative.

China’s workforce is shrinking as the population ages, and this demographic shift has become a more significant drag, reducing growth by 3.8 percentage points after 2017.

With demographic pressures intensifying and both household consumption and foreign demand weakening markedly, China’s growth has become increasingly reliant on productivity improvements.

A shrinking population and slowing productivity

This helps explain the slowdown in growth in recent Chinese data. Demographic change is a larger drag, and productivity growth has slowed.

Looking ahead, demographic pressures are set to intensify. China’s population began to decline in 2022, and the pace of decline is expected to accelerate. The working-age population is shrinking even faster than the total population.

Population projections suggest China’s working-age population could fall to less than one-third of its 2014 peak by the end of the century.

Other traditional supports for growth also look weaker. Total public and private investment growth has weakened in recent years, with fixed-asset investment turning negative in 2025.

At the same time, slowing global demand amid heightened geopolitical uncertainty is proving challenging for exports. Trade patterns are also shifting as higher US tariffs on Chinese goods have encouraged diversification to other markets.

What this means for the future

Our central finding is straightforward. China’s growth is now being increasingly shaped by two forces: slower productivity growth and a drag from demographic change.

This is not to say the demand side of the economy does not matter. But in our analysis, changes in consumer demand, investment and trade make only limited direct contributions to GDP growth. Their significance lies more in what they reveal about the broader structure of the Chinese economy.

In particular, both the 2017-2022 period and recent data show little evidence of a shift towards consumer spending playing a larger role in supporting growth.

What this means for the rest of the world

Looking ahead, the main question is whether productivity growth can remain strong enough to offset the effects of a shrinking workforce.

Our results suggest some caution on that front. The scope for continued rapid growth by adopting and adapting existing technologies from more advanced economies is narrowing. Population ageing is likely to place continuing downward pressure on the supply of workers. Although China is investing heavily in automation and robotics, these advances may not be sufficient to fully offset these headwinds.

The international implications are harder to predict. Slower growth in China would weaken demand for goods and services that are exported from countries like Australia.

But it could also create new opportunities for other developing economies. This is already evident in the shift of some manufacturing investment to Southeast Asia, partly in response to rising costs and trade tensions.

The effects are therefore likely to differ across countries and industries. What is clear is that the character of China’s growth is changing, and that change will matter well beyond China itself.