Analysis: China’s economy and its influence on global markets

China remains a major force in the global economy, even as growth has cooled from the rapid pace investors remember from the 2000s. Real GDP growth slowed to 4.5% in the fourth quarter of 2025 versus a year earlier, marking the slowest pace in three years.¹ Even so, China still ranks as the world’s second largest economy after the United States, which keeps it central to trade and market outcomes worldwide.²

For investors, the key point is not whether China is “up” or “down” in any single quarter, but how its shifting growth pattern influences the rest of the world. When China buys less, sells more, or redirects supply chains, the effects can ripple across manufacturers, commodity markets, shipping routes, and corporate profits. That bigger picture matters because many global companies—and many global funds—remain linked to China.

Trade rules are changing, and companies are adapting in real time

U.S.-China trade policy has remained a major swing factor for business planning and investor confidence. President Donald Trump's administration reframed U.S.-China trade relations last year by imposing escalating tariffs on Chinese imports. After several rounds of negotiations, the two countries reached a one year trade agreement on November 1 that helped stabilize trade relations into 2026, with the U.S. reducing certain tariffs and China resuming regular purchases of U.S. soybeans while pausing rare earth export controls.

China built much of its modern economic rise on exports, pairing low cost production with large infrastructure investment and a growing skilled workforce. Those strengths helped expand China’s middle class and supported years of faster growth, but they also left the economy sensitive to changes in trade access. Entering 2025, the U.S. was the largest customer for Chinese goods, which helps explain why shifts in U.S. demand and policy can quickly show up in shipping and factory activity.³

Today, China is working to offset weaker U.S. demand by selling more to other regions, while also trying to protect jobs at home. “China hopes it can replace U.S. business by stepping up exports to other countries,” says Rob Haworth, senior investment strategy director with U.S. Bank Asset Management Group. China increased total exports by 5% in 2025 versus 2024, as gains across Asia, Africa, Europe, and Latin America helped offset a 20% decline in exports to the U.S.¹

China’s property slowdown remains a heavy drag on confidence

China’s property downturn, which began in 2021, continues to pressure growth and sentiment. Years of rapid building and easy credit created too much supply and helped push prices lower, which in turn slowed construction and related activity. In earlier years, rapid property development played an outsized role in growth, accounting for nearly one third of GDP, so a long adjustment period can affect jobs, spending, and household confidence.³

Recent consumer trends have looked steadier, but the durability of that improvement remains an open question. Retail sales grew 4.0% in 2025 compared with a year earlier, yet the broader message still points to caution rather than a clean rebound.¹ “Stimulus measures are boosting consumer spending, but savings are also rising,” says Haworth. “Even though the economy isn’t accelerating, it is still growing.”

Other indicators point to a slower pace, including low consumer inflation and falling government bond yields, which often align with softer growth expectations. At the same time, some economic data measures are not consistently available to the public, including youth unemployment, which can limit how clearly investors and businesses can assess conditions. When key pieces of data are missing or delayed, it becomes harder to see the full picture of where China’s economy is strengthening and where it remains under pressure.

Investment challenges and opportunities persist

China’s stock markets have faced a difficult stretch for much of the 2020s, including a three year losing run from 2021 to 2023.¹ Stocks rebounded in 2024 based on the MSCI China Index’s performance, and a weakening U.S. dollar fueled a further 31.2% gain in 2025 by increasing China equity market returns for U.S.-based investors.¹ Even after that improvement, the market has not fully recovered its prior highs, and as of February 18 China’s equity market remained 35% below its February 2021 peak.¹

China also remains hard to avoid in many global portfolios because of its weight in widely used emerging market benchmarks. Investors still classify China as an emerging market, and the country holds the largest single country share in the MSCI Emerging Markets Index at nearly 27%.⁴ “Any investor who puts money to work in a broad, emerging market index owns a significant position in Chinese stocks,” says Haworth.

In 2024, the MSCI Emerging Markets Index delivered a 7.5% total return, which nearly doubled the return of the MSCI EAFE developed markets index over the same period.¹ Even with that advantage versus developed markets outside the U.S., emerging markets still trailed U.S. stocks, as the S&P 500 gained 25.0% that year.¹ Performance then broadened in 2025 and into early 2026. Emerging markets gained 33.6% in 2025 compared to 17.9% for the S&P 500. Year-to-date through February 18, 2026, emerging market stocks  are up 11.2%, compared with 0.7% for the S&P 500.¹

Simplified international stock diversification

International stocks can strengthen diversification because they may not move in lockstep with the U.S. market. “Global stocks offer an attractive investment opportunity to manage risk from elevated U.S. equity values and trade uncertainty,” says Haworth. That approach focuses less on guessing short term headlines and more on spreading exposure across different economies and business cycles.

Haworth favors taking China exposure through broad emerging market funds rather than trying to pick narrow slices of the market. That path can reduce the risk of concentrating too heavily in one country while still recognizing China’s size in the global system. Emerging market benchmarks can also broaden sector exposure beyond what many U.S. heavy portfolios hold, especially as more manufacturing and technology exporters have grown outside the United States.

“Today, compared to the past, we find more manufacturing and technology exporters across emerging market economies,” says Haworth. “Many of these manufacturers outside of China may benefit from U.S.-China trade fallout.” The practical takeaway is to match any change to your goals, time horizon, and comfort with risk, and to work with your U.S. Bank wealth professional to confirm whether emerging market stocks, including China exposure, fit your plan.

Note: The MSCI China Index captures large and mid cap representation across China A shares, H shares, B shares, Red chips, P chips and foreign listings (e.g. ADRs). With 568 constituents, the index covers about 85% of this China equity universe. Currently, the index includes Large Cap A and Mid Cap A shares represented at 20% of their free float adjusted market capitalization. The MSCI Emerging Markets Index captures large and mid-cap equity performance across twenty-four emerging market countries. Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility. International investing involves special risks, including foreign taxation, currency risks, risks associated with possible differences in financial standards and other risks associated with future political and economic developments.