China Economic Quarterly Q1-Q2 2025 (Combined issue)

Economic update - Mapping a distorted landscape

• China’s economy recorded solid growth in the first half of 2025, with GDP growing 5.3% year-on-year, exceeding the official target despite mounting global headwinds. The resilience was underpinned by robust manufacturing and a strengthening services sector.
• Buoyant exports helped sustain economic momentum. While shipments to the US declined, strong growth in ASEAN, Africa, and Latin America helped offset the shortfall. However, this strength may be partially driven by front-loading ahead of anticipated tariff hikes, suggesting a potential pullback in the second half.
• The new US tariffs on transhipped goods add further uncertainty. Their impact will hinge on enforcement specifics and the definition of transshipment, but could ripple through China’s indirect export routes and third-country trade flows.
• Domestic consumption received a boost from the trade-in programme, but the momentum is showing signs of fading amid cautious household sentiment. Continued support will be needed to sustain the recovery.
• Investment was subdued in the first half of 2025. Real estate remained a drag on growth, while private investment softness likely reflects delayed business decisions amid heightened uncertainty.

Special topic - China’s consumption outlook

• China’s consumer market has grown into the world’s second-largest, but recent data reveals a slowdown in momentum. Retail sales growth has softened, and consumer sentiment remains subdued, weighed down by housing market stress and global uncertainty.
• Structurally, consumption remains underweight in China’s GDP mix. Household spending accounts for just 40% of GDP-far below levels seen in developed economies-highlighting both the challenge and the opportunity for rebalancing toward domestic demand.
• Policymakers have responded with a multi-pronged strategy to revive consumption, focusing on boosting household income, expanding social safety nets, and deploying counter-cyclical stimulus. The 30-point plan unveiled in mid-2025 marks a strategic pivot toward consumption-led growth.
• A notable shift is underway from goods-based to service-based consumption. Sectors like entertainment, wellness, and education are seeing strong demand, driven by changing preferences and policy support. This evolution presents new opportunities for businesses and investors.
• China’s consumer market remains a strategic priority for global investors and multinational businesses. Despite near-term headwinds, the market continues to offer substantial untapped potential. Realising its full promise will depend on advancing structural reforms, promoting inclusive income growth, and implementing targeted initiatives to restore consumer confidence.