The Chinese economy grew by 5% last year – but this should come as no surprise to anyone. After all, this was the goal of the Chinese Communist Party, and Xi Jinping had already mentioned a few weeks ago that the growth target had been achieved. Beneath the surface, however, there are still some very interesting developments, Commerzbank's FX analyst Volkmar Baur notes.

CNY set for modest appreciation amid export concerns

"The most striking of these is the imbalance in the Chinese economy, which has become increasingly apparent in the data in recent months. While exports continue to rise (+6.6% yoy in December – data was already released last week), retail sales in December rose by only 0.9% in nominal terms compared to the previous year. After adjusting for inflation of 0.8%, retail sales in China in December 2025 were virtually unchanged in real terms compared to last year. And the situation is even worse when it comes to investment."

"Fixed asset investment in 2025 was 3.8% below the previous year's level. In December, the decline was therefore probably in double digits again. The only ray of hope in the monthly economic data therefore remains industrial production, which grew by 5.2% year-on-year. However, as there is no domestic demand for this increased production, China's economy will continue to have to seek relief in exports."

"From a currency perspective, this means that the very tightly managed CNY will continue to be allowed to appreciate only very slightly against the US dollar. Persistently low inflation, which remains deflationary in terms of producer prices and GDP deflator, is causing the real exchange rate in China to continue to fall, which means that the currency should actually appreciate significantly in nominal terms in order to maintain purchasing power parity. However, excessive currency appreciation could weigh on exports. And since foreign trade is currently the last remaining growth driver, the central bank will be very cautious about what it allows."