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China's Economy Grows 5.2% in Q2, Eases Stimulus Pressures—but Underlying Weakness Lingers

China’s economy expanded by 5.2% year-on-year in the second quarter of 2025, surpassing economists’ expectations and exceeding the government’s annual growth target of 5%, according to data released Tuesday by the National Bureau of Statistics (NBS). This marks a positive sign for Beijing, potentially delaying additional stimulus efforts in the near term—but beneath the headline growth, deeper weaknesses remain.

Economists surveyed by Reuters had forecasted 5.1% growth for the quarter. However, while Q2 performance came in slightly above projections, it still marked a slowdown from the 5.4% growth posted in the first quarter.

Industrial Production Strong, But Consumption Slows

A key bright spot in the data was industrial production, which climbed 6.8% in June compared to a year earlier—well above Reuters’ median forecast of 5.7%. This surge was largely driven by export-oriented sectors and accelerated manufacturing activities aimed at offsetting weaker domestic demand.

Retail sales, a major gauge of consumer spending, disappointed. Growth in June slowed to 4.8%, down from 6.4% in May and below the anticipated 5.4%. Within that, catering services rose just 0.9%, the weakest pace since December 2022, signaling sluggish momentum in consumer-facing sectors.

Investment Remains Tepid Amid Real Estate Slump

Fixed asset investment (FAI), which includes spending on infrastructure, property, and equipment, rose 2.8% in the first half of the year. This missed the expected 3.6% growth and points to cautious corporate sentiment.

Real estate investment continued its prolonged downturn, plunging by 11.2% in H1 2025—worse than the 10.7% decline recorded in the first five months. Infrastructure and manufacturing investment also showed signs of slowing, raising concerns about long-term capital formation.

The urban unemployment rate stayed steady at 5% in June, though it remains slightly below February’s peak of 5.4%. However, labor market analysts caution that the headline figure may not fully reflect the challenges faced by migrant workers and recent graduates.

Policymakers May Delay New Stimulus—For Now

With GDP growth now above target, analysts believe Beijing is unlikely to roll out major new stimulus measures at the Communist Party’s Politburo meeting later this month.

“Although growth is likely to slow in the second half of the year, the 5% government target may be within reach,” said Tianchen Xu, senior economist at the Economist Intelligence Unit. “This gives policymakers some room to hold off on fresh stimulus unless momentum stalls.”

According to Xu, if the economy shows signs of renewed weakness, a final push through monetary and fiscal easing could still come around September.

External Pressures and Tariff Truce

External demand and exports played a crucial role in lifting China’s Q2 performance, especially in the face of rising U.S. tariffs. In April, U.S. President Donald Trump raised tariffs on Chinese imports to a staggering 145%, prompting Beijing to respond with targeted support for exporters and hiring subsidies for local firms.

In May, both sides agreed to a temporary truce, rolling back several key tariffs and establishing a new trade dialogue. Talks in London the following month laid the groundwork for a broader agreement, with China promising faster rare-earth export approvals and the U.S. easing restrictions on Chinese students and tech access.

Still, the deadline for a permanent trade deal looms large—August 12—and unresolved trade tensions could once again put pressure on China’s fragile recovery.

Exports Shift Toward Southeast Asia and Europe

Despite the tariff headwinds, Chinese exports remained resilient. U.S.-bound shipments fell by 10.9% in the first half of the year, but this was offset by a surge in trade with Southeast Asia and the European Union—up 13% and 6.6%, respectively.

As a result, the share of China’s total exports going to the U.S. dropped from 14.1% in H1 2024 to just 11.9% this year, according to customs data released Monday. This shift reflects Beijing’s strategy of diversifying trade partners amid rising geopolitical risks.

Cautious Optimism but Structural Challenges Persist

While short-term growth appears solid, experts warn that underlying indicators suggest fragility. Recent reports point to soft CPI data, weak credit growth, and persistently low purchasing managers’ index (PMI) readings.

In a report published last week, PBOC advisor Huang Yiping and co-authors argued for up to 1.5 trillion yuan in additional fiscal stimulus to revive household demand. They also called for deeper structural reforms in pension systems, fiscal policy, and the banking sector to support long-term sustainable growth.

“The economy is stabilizing, but it’s not yet strong enough to stand on its own without policy support,” the report concluded.

Bottom Line

China’s second-quarter GDP beat expectations, giving policymakers room to breathe. But with weak consumption, a struggling property sector, and external uncertainties, the economy is far from out of the woods. Whether Beijing decides to pause or push forward with more aggressive policy moves will likely depend on data over the next few months and progress in trade negotiations with Washington.