Economy of China grows by 5.2% in the second quarter
China's economy in 2025 is experiencing a cautiously optimistic but complex picture, with external trade tensions and internal demand challenges shaping its current outlook.
The first half of the year saw the Chinese economy grow by 5.3% year-on-year, surpassing expectations. This growth was driven by robust industrial output (6.4% growth), strong export performance, and targeted investments, particularly in manufacturing. The services sector also expanded by 5.5%, and retail sales grew by 5.0%.
However, despite these positive indicators, key challenges remain in boosting household consumption and private investment, which have lagged compared to industrial growth. Real estate values continue to decline, affecting wealth and consumer confidence. Efforts to transition growth reliance more towards domestic consumption will require reforms such as better social protection to lower precautionary savings, addressing local government fiscal constraints, and stimulating consumption through a more progressive fiscal system aimed at lower-income households.
The ongoing trade tensions with the U.S., including elevated tariffs and policy uncertainty, have caused uncertainty and disruption in the Chinese economy. Despite this, exports showed resilience due to frontloading and shipment rerouting. A recent 90-day trade truce has temporarily eased export pressures, prompting expectations of some relief in export volatility. However, trade-related risks remain a significant downside factor, and the overall trade environment is still uncertain.
Policymakers are expected to maintain a cautious and measured approach. While modest monetary easing is anticipated, significant stimulus will likely be deferred as the government focuses on stabilising growth through policy implementation rather than aggressive intervention. Household demand stimulation and reforms in healthcare, social protection, and the property sector are seen as crucial for sustained long-term growth.
The World Bank projects that after maintaining solid momentum early in 2025, growth will moderate over the next two years—forecasting growth to slow from 5.0% in 2024 to around 4.5% in 2025 and 4.0% in 2026—due to global trade restrictions and subdued manufacturing investment and labor demand.
In conclusion, China in 2025 is experiencing steady near-term economic growth led by exports and industrial activity despite trade tensions, but faces critical challenges in generating robust domestic consumption and investor confidence amid a volatile global trade landscape and a struggling property sector. The outlook hinges on pragmatic policy adjustments and structural reforms to unlock household demand and achieve a more balanced and sustainable growth model.
A resumption of U.S. tariffs of up to 245% could derail the recovery in exports, a major driver of growth and employment, if Washington and Beijing fail to meet an Aug. 12 deadline for a new trade deal.
- Given the current economic growth in China, driven by industrial output and strong export performance, it is crucial for policymakers to focus on boosting household consumption and private investment in the finance sector to achieve a more balanced and sustainable growth model.
- The ongoing trade tensions between China and the U.S., particularly the threat of resumption of high tariffs, pose a significant risk to the services sector, as exports are a major driver of growth and employment in this area.
