China’s Economic Growth Slows As Domestic Demand Weakens And Trade Tensions Resurface

China's economy expanded at a slower pace in the second quarter of 2025, highlighting growing challenges posed by subdued consumer sentiment, mounting global trade uncertainties, and a faltering property sector.

While the gross domestic product (GDP) rose 5.2 per cent year-on-year between April and June, the figure reflects a slight deceleration from the 5.4 per cent growth posted in the first quarter, reported Reuters.

The quarterly growth rate also declined, with GDP rising by 1.1 per cent compared to the previous 1.2 per cent gain, although still outpacing the 0.9 per cent rise forecast by economists. Despite surpassing expectations, analysts caution that these numbers may overstate economic resilience as broader indicators suggest weakening momentum ahead.

Zhiwei Zhang, Chief Economist at Pinpoint Asset Management, noted, “China achieved growth above the official target of 5 per cent in Q2 partly because of front loading of exports. The above target growth in Q1 and Q2 gives the government room to tolerate some slowdown in the second half of the year.”

Pressure Mounts for Further Stimulus

Beijing has already introduced monetary easing, consumer incentives, and increased infrastructure spending to cushion the blow from both internal deflation and external pressures. In May, the central bank reduced interest rates and injected liquidity in response to US President Donald Trump’s tariff measures. However, with fresh economic risks looming, investors are closely eyeing the upcoming Politburo meeting for signs of additional stimulus.

Fixed-asset investment grew by just 2.8 per cent in the first half of 2025—down from 3.7 per cent in the January–May period. The sluggish performance underscores the broad uncertainty gripping businesses and households alike. Steel production fell 9.2 per cent year-on-year in June, pointing to weakening industrial demand.

Meanwhile, exports showed signs of recovery in June as manufacturers scrambled to beat an August tariff deadline. Still, many economists expect external trade support to fade later this year, raising the risk of a more pronounced slowdown.

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Consumers Cut Back as Pay Slips Shrink

The consumer sector continues to show strain. June’s industrial output climbed 6.8 per cent—its strongest reading since March—but retail sales slowed to 4.8 per cent from 6.4 per cent in May, marking the weakest growth since January–February.

Property remains a significant drag on growth. Investment in the sector dropped sharply in the first six months, and home prices in June posted the steepest decline in eight months. Despite repeated attempts to revive the market, including urban village redevelopment and a push for a new housing model, momentum remains elusive.

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