China's GDP growth surpasses expectations amid trade tensions with US
What's the story
China's economy grew faster than expected in the first quarter of 2025, data from the National Bureau of Statistics revealed. The country's gross domestic product (GDP) grew by 5.4% year-on-year, exceeding economists' consensus estimate of a 5.2% growth, according to a Bloomberg poll. The good news comes amid fears of an impending trade war with the US over steep tariff hikes.
Economic indicators
Industrial output and retail sales show strong performance
In March, China's industrial output grew a strong 7.7% year-on-year—the fastest since June 2021. Retail sales also jumped a whopping 5.9%, the strongest since December 2023 and beating economists' forecast of a 4.3% rise. "The most pleasant surprise is retail sales which shows that consumption subsidies are working," Michelle Lam, an economist at Societe Generale SA for Greater China, said.
Market response
Chinese stocks react to economic data amid tariff concerns
Despite the positive economic data, Chinese stocks largely held their losses before its release. The Hang Seng China Enterprises Index and CSI 300 Index lost as much as 2.4% and 0.8%, respectively. This data was released before the US significantly increased tariffs in April, leading to a potential trade war between the world's two largest economies with levies on most Chinese goods rising to at least 145%, along with other duties.
Cautionary note
NBS warns of complex external environment and insufficient domestic demand
The National Bureau of Statistics has warned about the increasingly complex and severe external environment. It stressed that effective domestic demand is lacking, and the foundation for sustained economic recovery and growth is yet to be consolidated. The bureau said, "We must implement more proactive and effective macro policies." These remarks come amid fears China's official growth target of around 5% this year may not be met without more stimulus measures.
Growth predictions
Economists lower forecasts for China's 2025 growth amid tariff concerns
Economists from various international banks, including UBS Group AG, Goldman Sachs Group Inc., and Citigroup Inc., recently revised their 2025 growth forecast for China to about 4% or lower. The revision comes as expectations grow for the Chinese government to announce more stimulus measures. Some economists expect the People's Bank of China to cut interest rates or reduce mandatory reserves for banks this month. Others expect trillions of yuan in additional fiscal borrowing and spending due to reduced exports.
Trade slowdown
Trade war impact expected to manifest in April
The impact of the trade war is likely to be seen in economic activities from April. After a spike in China's exports in March, trade activities have likely slowed down this month as global companies stopped orders and cut production. The chances of an agreement between the US and China over the trade dispute seem slim in the near future as Beijing has taken a more aggressive stance after the latest round of tariff hikes.