Q2 GDP: China posts better-than-expected 5.2% growth in the face of ongoing US trade war

CNN

15-07-2025

Source: CNN
China reported better-than-expected economic growth for the second quarter in the face of an ongoing trade war with the United States, as diversification efforts to non-US markets buoyed exports.
Gross domestic product (GDP) expanded 5.2% in the second quarter from the same period a year earlier, according to the National Bureau of Statistics (NBS) at a press conference on Tuesday. That was higher than the average prediction of 5.1%, based on a poll of 40 economists surveyed by Reuters on Friday.
The GDP growth in the second quarter was a slowdown from a 5.4% expansion in the first three months of the year. Together, GDP growth for the first half of the year compared to the same period last year stood at 5.3%, according to the NBS.
Sheng Laiyun, deputy commissioner of the NBS, said the growth in the first half of the year was achieved 'under the challenging circumstances of rapidly shifting international dynamics and significantly increased external pressure since the second quarter.'
'We are also keenly aware that the external environment remains complex and volatile, internal structural problems have yet to be fundamentally resolved, and the foundation of economic performance still needs to be further strengthened,' he said.
China's economy remains under mounting external and internal pressure to meet its ambitious target of 'around 5%' growth set for this year, a goal economists believe will be tough to achieve without further policy support.
US President Donald Trump's tariff offensive – which at one point reached 145% on Chinese imports – has upended what is arguably the world's most consequential bilateral trade relationship. Under a May truce reached in Geneva that scaled back the triple-digit tariffs, Beijing has less than a month, until August 12, to secure a permanent deal with Washington.
For China's export-reliant economy, much hinges on the tariff rate ultimately agreed upon. Even a double-digit levy would carry profound and lasting implications for Chinese manufacturers – a key pillar of the country's economic engine.
Domestically, the Chinese economy continues to be plagued by a host of structural challenges, including a prolonged property crisis, soaring youth unemployment, sluggish consumption and persistent deflation.
In June, consumer spending fell short of expectations while industrial production exceeded them, according to data released by the NBS Tuesday. Retail sales slowed to 4.8% from the same month last year, compared with 6.4% growth in May. Industrial output expanded 6.8% compared with June last year, an increase from 5.8% last month, likely due to the trade truce.
Meanwhile, the housing market is slowing again, weighing on the economy after a brief recovery following late last year's stimulus, Macquarie Group's chief China economist Larry Hu wrote in a Wednesday research note. Investment in the sector plunged 11.2% in the first six months compared with the same period last year, according to NBS data.
Nick Marro, principal economist for Asia at the Economist Intelligence Unit, told CNN that while the trade war has dragged on market sentiment, it hasn't emerged as the massive shock to Chinese economic performance that investors initially feared back in April.
With weaknesses in the domestic economy, such as weak consumer confidence and persistent stress in the property sector, however, he expects China to barely undershoot its annual target for this year.
But Marro also cautioned that there is a mismatch between what the GDP figure says and what companies and households are seeing on the ground.
'For many, this doesn't 'feel' like an economy growing at around 5% – That sentiment factor has implications for how sustainable future retail spending is, as well as considerations for businesses about future investment expansions, as well as hiring and wage growth,' he said.
Despite growth in the first half of the year exceeding the 5% target, economists warned that existing obstacles could weigh on exports and slow economic momentum in the months ahead.
Zichun Huang, an economist at Capital Economics, wrote in a Tuesday research note that the economic outlook for the rest of the year remains 'challenging.'
'With tariffs set to remain high, fiscal ammunition being depleted and structural headwinds persisting, growth is likely to slow further over the second half,' he said.
In June, China's manufacturers capitalized on the trade truce with the US and diversified their supply routes to achieve a 5.8% growth in overall export compared to the same month in the previous year, beating analysts' forecast, according to trade data released on Monday by China's General Administration of Customs. At the same time, imports edged up 1.1%, marking the first monthly increase in inbound shipments since February.
Notably, exports of rare earth jumped 32% in June from the same month a year ago, signaling positive progress as China agreed to approve the flow of the critical elements essential in everything from electronic products to vehicles and fighter jets following talks in London with the US last month.
Outbound shipments to the US in June declined 16.1% from the same month last year due to persistent trade frictions. But exports last month grew 32% month-on-month following the Geneva agreement. For the first half of the year, exports to the US dropped 9.9% from a year earlier, with second-quarter shipments plummeting nearly 21%.
Southeast Asia in particular has emerged as a major export destination in place of the US. Exports to the 10-country Association of Southeast Asian Nations (ASEAN) surged by over 18% compared with June last year. China has increasingly turned to neighboring economies not only as end markets but also as logistical intermediaries, routing goods through countries like Vietnam to circumvent US tariffs — a strategy the Trump Administration has vowed to crack down.
As part of a trade framework the US reached with Vietnam, Trump said he will impose a 40% duty on transshipped imports via Vietnam. Chinese exports to Vietnam rose more than 25% last month compared with June last year.
At a press conference on Thursday, Chinese officials touted how the country has diversified its 'circle of friends' with a rise in exports to the European Union, South Korea, Japan in addition to ASEAN in the first half of the year.
Within China, the economy continues to grapple with deflationary pressure, as factory gate deflation, as measured by Producer Price Index (PPI), plunged 3.6% in June from a year earlier, according to NBS data released last week. This marks its sharpest decline in nearly two years, and extends the country's producer deflation streak to 33 consecutive months.
Meanwhile, the Consumer Price Index (CPI), a benchmark for measuring inflation, rose 0.1% compared to the same month last year, ending a four-month decline.
Deflation is problematic because it discourages people from spending now, in anticipation of lower prices in the future. This dampens consumption – a key driver of economic growth.
Analysts attributed the uptick in consumer prices to government subsidies on consumer goods, and warned that the recovery may be short-lived as stimulus effects fade.
The persistent deflationary pressure is squeezing business profits and wages, and it has been exacerbated by price wars and overcapacity such as in the auto industry. Authorities have grown increasingly concerned and have urged companies to end aggressive discounting.
In response to the economic malaise and external challenges like tariffs, China's cabinet, the State Council on Wednesday unveiled a slew of measures to 'stabilize employment,' including expanding social insurance coverage, subsidies, loan support and vocational training for targeted groups such as youths.
China's urban unemployment rate stood at 5% in June, below the government's annual target of 5.5%, according to the NBS on Tuesday. But youth unemployment remained a major problem.
The unemployment rate for China's working population aged 16 to 24 remained elevated at 14.9% in May, despite falling to its lowest level in nearly a year. The figure for those aged 25 to 29 declined to 7% during the same period.
As part of the new measures announced, the government will disburse a one-off subsidy of up to 1,500 yuan ($209) per person to companies and social organizations that hire unemployed youth aged 16 to 24 and pay for their full insurance for at least three months, the notice said.
The State Council also directed local authorities to provide graduates struggling to find jobs with one-on-one support, including at least three job recommendations. After graduation, those still unemployed would receive continued support like policy briefings, career guidance, job leads, and training or internship opportunities, the notice said.
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