China’s economy slowed less than anticipated in the second quarter, showing resilience against mounting U.S. tariff pressures. However, analysts caution that weakening domestic demand and
growing global trade risks are likely to intensify calls for additional stimulus from Beijing.
The world’s second-largest economy has thus far avoided a sharp downturn, buoyed by policy support and a temporary boost from factories accelerating shipments amid a U.S.-China trade truce. Still, investors are bracing for a weaker second half, as export momentum fades, prices continue to decline, and consumer confidence remains subdued.
Policymakers now face significant challenges in achieving the government’s full-year growth target of around 5% — a goal many economists deem optimistic given persistent deflationary pressures and sluggish domestic demand.
According to data released Tuesday, China’s gross domestic product (GDP) expanded 5.2% year-on-year in the April-June quarter, slowing from 5.4% in the first quarter but slightly exceeding the 5.1% forecast from a Reuters poll.
“China managed to beat its official 5% growth target in the second quarter, partly thanks to front-loaded exports,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management. “The stronger-than-expected growth in the first half provides room for the government to tolerate some deceleration later this year.”
Following the data release, China’s blue-chip CSI300 Index dipped 0.1%, while Hong Kong’s Hang Seng Index pared gains, up 0.7%.
On a quarterly basis, GDP grew 1.1% in April-June, above the projected 0.9% increase, though slightly below the previous quarter’s 1.2% gain.
Markets are now closely watching for new policy measures from the upcoming Politburo meeting later this month, expected to set the economic tone for the rest of the year.
In response to tariff-related headwinds, Beijing has increased infrastructure spending, rolled out consumer subsidies, and steadily eased monetary policy. In May, the central bank lowered interest rates and boosted liquidity in a broader effort to shield the economy from the fallout of U.S. President Donald Trump’s trade measures.
Households Feeling the Squeeze
Separate economic data for June highlighted ongoing pressure on consumers. Industrial production rose 6.8% year-on-year, the fastest pace since March, but retail sales growth slowed to 4.8% from May’s 6.4%, hitting the lowest level since the January-February period.
For many households, the overall GDP numbers offer little comfort. In the southern tech hub of Shenzhen, 30-year-old doctor Mallory Jiang noted that both she and her husband experienced pay cuts this year.
“Our incomes as doctors have dropped, and we’re still hesitant about buying a home,” Jiang said. “We’ve cut back on expenses, using public transport and eating at the hospital cafeteria or cooking at home. Life feels financially stressful.”
Analysts warn that stimulus alone may struggle to counter deeper deflationary trends. Producer prices in June fell at their fastest rate in nearly two years.
“The headline GDP figures likely overstate the real strength of the economy,” said Zichun Huang, China economist at Capital Economics. “With exports poised to weaken and fiscal support losing momentum, growth is expected to slow further in the second half.”
Recent trade data showed exports regained some ground in June, as manufacturers rushed to ship goods before a looming tariff deadline in August.
Rising Economic Challenges
A Reuters poll forecasts GDP growth to ease to 4.5% in the third quarter and 4.0% in the fourth, underscoring growing economic headwinds as the U.S.-China trade standoff drags on. Getting households to spend more amid prevailing uncertainty remains one of Beijing’s toughest policy challenges.
Projections suggest China’s annual GDP growth could slow to 4.6% in 2025, falling short of the official target, and decline further to 4.2% by 2026.
Meanwhile, China’s struggling property sector continues to weigh heavily on growth. Despite several rounds of support measures, investment in real estate fell sharply in the first half of the year, and new home prices in June declined at their fastest monthly pace in eight months.
Fixed-asset investment also disappointed, rising just 2.8% year-on-year in the first six months, down from 3.7% in the January-May period. This reflects broader economic uncertainty, with crude steel output in June dropping 9.2% from a year earlier as steelmakers paused production amid seasonally weaker demand.
“Without stronger fiscal stimulus, third-quarter growth faces significant risks,” said Dan Wang, China director at Eurasia Group in Singapore. “Both consumers and businesses have become more cautious, while exporters increasingly look overseas for opportunities.” Photo by King of Hearts, Wikimedia commons.
