Deepening CPEC-II collaboration under China's new Five-Year Plan

China's economy is showing unmistakable signs of slowing in 2025, and the ripple effects are being felt across Asia. Its third-quarter GDP growth slipped to 4.8% from 5.2% in the previous quarter, marking the weakest pace in a year. Much of the drag stems from persistent structural weaknesses, particularly in the property market.

Real estate investment has fallen 13.9% year-to-date by September, while home prices in major cities continue to decline despite targeted stimulus. Consumer sentiment is subdued as retail sales have grown by just 3%, the lowest in a year, reflecting the cautious attitude of households facing job market uncertainty and shrinking wealth.

Deflationary pressures remain a concern, with producer and consumer prices both depressed, complicating Beijing's efforts to stabilise demand.

Despite these difficulties, growth has averaged 5.2% during the first nine months of the year – enough for China to meet its annual target of around 5%. Exports have provided some support, though this strength is vulnerable to escalating tensions with the United States, including new tariffs, tighter restrictions on rare earth minerals and additional controls on the transfer of advanced technology.

These frictions signal a structural shift in the relationship between the world's two largest economies rather than a temporary disruption. In response, policymakers in Beijing are easing monetary conditions, offering selective tax relief and considering interest rate cuts to lift consumption and private investment. At the same time, China is finalising a new Five-Year Plan that prioritises high-tech manufacturing, AI-driven innovation, productivity upgrades and greener industry, aiming to shift the economic model away from property-led growth. For Pakistan, China's economic trajectory is not a distant macroeconomic development. It directly shapes trade flows, investment inflows, energy availability and industrial expansion. A further slowdown in China would have immediate consequences.

With bilateral trade touching $23.1 billion in 2024, weakening Chinese demand would hit Pakistan's exports of cotton yarn, copper scrap, seafood, leather and semi-processed foods. This would worsen Pakistan's already delicate trade deficit, which stood at $17.4 billion last year. Even if global commodity prices fall and offer some import relief, the loss of export earnings would outweigh the benefit.

A deeper Chinese slowdown would also cloud the outlook for CPEC — the backbone of Pakistan's infrastructure and energy modernisation. China has financed power plants, transmission lines, motorways, ports and industrial zones.

If economic pressures force Beijing to scale back or delay overseas commitments, Pakistan could experience slower progress on Special Economic Zones, reduced momentum in Gwadar's port and free zone development, postponement of energy upgrades, and delays in railway modernisation, including Main Line-1.

Domestic industries dependent on Chinese machinery and components — textiles, pharmaceuticals, construction, renewable energy — could face increased costs or supply disruptions. Foreign exchange reserves would come under pressure as export receipts soften and project financing slows, complicating Pakistan's efforts to stabilise inflation, interest rates and the exchange rate. In such a scenario, Pakistan would need to diversify export markets, attract investment from a broader pool of countries and push ahead with overdue structural reforms to build resilience.

However, if China succeeds in stabilising growth around the 5% mark, the outlook for Pakistan will become considerably more favourable. Stable Chinese demand would support Pakistan's industrial and agricultural exports, helping maintain a more manageable trade balance and providing predictability for businesses engaged in cross-border commerce. Crucially, steady economic conditions in China would help sustain momentum under CPEC. Ongoing projects in transport infrastructure, grid modernisation, renewable energy and industrial zones could proceed without major delays. Improvements in logistics and energy availability would strengthen Pakistan's productive capacity and competitiveness.

China's incoming Five-Year Plan, with its focus on "new quality productive forces" such as artificial intelligence, robotics, electric mobility and green technologies, offers opportunities for deeper collaboration under CPEC phase-II. Pakistan stands to benefit from joint ventures in electric vehicle components, solar equipment, battery assembly, AI skill development, agri-tech and smart manufacturing. Such cooperation could accelerate the country's transition towards a higher value-added and innovation-oriented economy.

Stable Chinese investment and predictable financing flows would also support Pakistan's macroeconomic stability, helping improve investor confidence and giving policymakers greater space to pursue long-term reforms rather than crisis management.

China's economic performance in 2025 is, therefore, pivotal not only for Beijing but also for Islamabad. A sharper slowdown would test Pakistan's resilience and force difficult adjustments, while a stable China would offer space to consolidate growth, modernise industry and deepen technological cooperation.

The coming months will determine whether Pakistan must brace for external headwinds or position itself to benefit from new opportunities emerging in China's evolving economic landscape.

The writer is a Mechanical Engineer and is pursuing Master's degree