China's GDP growth beats expectations but trade woes loom
The Chinese economy has surpassed analysts' expectations, achieving a GDP growth of 5.4 percent year-on-year in the first quarter of 2025. This outcome exceeds both the annual growth target of "around 5 percent" and economists' forecasts, who anticipated a growth of 5.1 percent.
However, on a quarterly basis, the Chinese economy experienced a slowdown, with growth at 1.2 percent compared to 1.6 percent in the last quarter of 2024. Despite this deceleration, economic indicators for March were more favourable than predicted, with industrial production increasing by 6.5 percent and retail sales rising by 4.6 percent year-on-year.
The National Bureau of Statistics of China (NBS) described the economy as having had a "good and steady start," maintaining its recovery momentum. Nonetheless, the institution cautions about growing challenges in the global economic landscape, which is becoming "more complex and severe." Sheng Laiyun, deputy head of the NBS, acknowledged at a press briefing that "the imposition of high tariffs by the US will put certain pressures on our country's foreign trade and economy."
Trade war and its consequences
Economists suggest that the positive results in the first quarter might be the last upbeat development before a forthcoming slowdown. Zhiwei Zhang, chief economist at Pinpoint Asset Management, is convinced that the Chinese economy expanded more rapidly than expected in the first quarter.
He observed that the March data on activity accelerated in all areas, which matches the robust export data published earlier. He simultaneously cautions that the impacts of the trade war will only become apparent in the macroeconomic data over the coming months.
Zhang predicts significant ramifications for the global economy. He argues that indicators suggest a sharp slowdown in exports in the region, whereas supply chains have been disrupted, likely creating a domino effect in many countries.
Experts point out that the 6.9 percent rise in exports, particularly to the USA, resulted from companies rushing to fulfil orders before higher tariffs were imposed. In the subsequent quarters, a decline in this indicator is likely to become evident.
Challenges for the Chinese economy
Despite the encouraging data for the first quarter, the Chinese economy continues to encounter substantial structural challenges. The real estate sector remains a significant concern, with investments in real estate falling by 9.9 percent in the first quarter, continuing to negatively affect the overall condition of the economy.
The current international trade situation further adds complexity to the outlook. Tariffs on imports from China to the USA are now at 145 percent, while China has raised retaliatory tariffs on American goods to 125 percent.
The Asian Development Bank predicts a slowdown in China's economic growth to 4.7 percent in 2025. It attributes this to higher US tariffs, low consumer confidence, and ongoing issues in the real estate sector.
Although the first quarter yielded better-than-expected results, analysts remain cautious about their forecasts for the rest of the year, highlighting increasing tensions in international trade as a key risk factor for the Chinese economy.
