China’s economy expanded by 5.2% in the second quarter of 2025, surpassing expectations but slowing from the 5.4% recorded in the first quarter, as the country grapples with persistent deflationary pressures, a prolonged housing slump, and renewed trade friction with the United States.
The latest gross domestic product (GDP) figure, released Monday by the National Bureau of Statistics, slightly beat the 5.1% growth expected.
While the result offered some reassurance that Beijing’s recent stimulus measures are helping to stabilise growth, it also underscored the growing headwinds weighing on the world’s second-largest economy.
Industrial production remained a bright spot, rising 6.8% year-on-year in June and exceeding expectations of 5.6%. However, the overall picture was more mixed.
Retail sales, a key measure of consumer demand, rose 4.8% in June, slowing down from 6.4% in May and falling short of expectations for a 5.6% gain.
Meanwhile, fixed asset investment for the first half of the year rose just 2.8%, below the 3.6% anticipated. The urban unemployment rate held steady at 5% in June, down from a two-year high of 5.4% in February.
The quarterly data follows months of economic strain fuelled by rising tariffs from the United States. In April, U.S. President Donald Trump raised levies on Chinese imports to a punitive 145%, a move that sparked a raft of policy responses from Beijing, including subsidies for exporters and firms hiring new graduates, as well as broader consumption-support measures.
Though tensions have since eased, with both sides reaching a temporary truce in May and outlining a framework for resolution in June, the damage has already filtered through to China’s economic fundamentals.
Under the June framework, agreed in London, Beijing committed to accelerating approvals for rare-earth exports, while Washington agreed to ease restrictions on Chinese access to advanced technologies and loosen visa restrictions for Chinese students.
A permanent trade agreement must still be finalised before a 12 August deadline.
Beijing has already rolled out a number of supportive policies, including interest rate cuts and liquidity injections via the People’s Bank of China. These moves have helped stabilise parts of the economy.
Official and private manufacturing surveys suggest activity has begun to recover, and exporters have shown signs of resilience by pivoting to alternative markets.
Exports to the United States fell 10.9% in the first half of the year, customs data showed Monday. In contrast, shipments to Southeast Asia and the European Union - now China’s two largest trading partners - rose 13% and 6.6%, respectively.
As a result, the U.S. share of China’s total exports dropped to 11.9% in the first half of 2025, from 14.1% a year earlier.
Despite these positives, economists remain cautious. Many are warning that the current stimulus may be insufficient to sustain momentum in the second half of the year.
PBOC advisor Huang Yiping and two other economists recently published a report calling for an additional CN¥1.5 trillion (A$319.7 billion) in fiscal stimulus to offset the continued drag from tariffs and weak domestic consumption.
