China Faces Demographic and Economic Challenges

China's birth rate has hit a record low, with the government data showing a rate of 5.63 per 1,000 people in 2025, despite efforts to boost it through incentives such as cash bonuses and extended maternity leave. The country's population fell for the fourth consecutive year, declining by 3.39 million to 1.4 billion. Experts warn that a shrinking population will have significant economic and social implications, including a declining workforce and strain on the pension system. China's low fertility rate, high cost of raising children, and changing societal attitudes are contributing factors to the decline.

China's central bank, the People's Bank of China (PBOC), has kept its benchmark lending rates unchanged for the eighth consecutive month, despite the country's slowing economic growth. The 1-year and 5-year loan prime rates remain at 3% and 3.5%, respectively. China's economy grew 4.5% year-on-year in the fourth quarter of 2025, the slowest pace since late 2022. The PBOC has instead focused on targeted support for specific sectors, such as reducing interest rates on relending facilities for agricultural and small businesses, and setting up a dedicated relending program for private firms. Economists expect further easing measures, including a potential cut in the reserve requirement ratio and policy rates.

The number of Chinese tourists visiting Japan decreased by 45% in December 2025 compared to the same month the previous year, amid a diplomatic row between Beijing and Tokyo over Taiwan's security. Japan's Prime Minister, Sanae Takaichi, had suggested that Japan could become militarily involved if China were to invade Taiwan, triggering a backlash from China. China urged its citizens not to travel to Japan, citing safety concerns, and cancelled cultural exchanges. Despite this, Japan still saw a record 42.7 million foreign visitors in 2025. The decline in Chinese tourists poses risks to Japan's tourism industry, which relies heavily on Chinese visitors.