Broker: UOB Kay Hian
Date of Report: Wednesday, 16 July 2025
China’s Economic Outlook 2025: Resilient Growth Amid Trade War Headwinds and Policy Shifts
Sturdy H1 2025 Growth Masks Mounting Downside Risks
China’s economy delivered a solid performance in the first half of 2025, with real GDP rising 5.3% year-over-year. The second quarter showed some moderation, with GDP growth at 5.2% year-over-year, reflecting the growing impact of trade war uncertainties. The government’s targeted policy support helped cushion the economy, but signs of strain are increasingly evident, particularly as new US tariffs loom on the horizon.
Key Economic Highlights and Performance Metrics
- Real GDP Growth (1H25): 5.3% yoy
- 2Q25 GDP: 5.2% yoy (down from 5.4% in 1Q25)
- Retail Sales (1H25): 5.0% yoy, buoyed by subsidy schemes
- Industrial Production (1H25): 6.4% yoy, as demand was pulled forward ahead of tariff increases
- Fixed Asset Investment YTD (Jun 25): 2.8% yoy, below consensus
- Surveyed Unemployment Rate (June): 5.0%
Major Industry Performance in 2Q25
- Primary Industry: Up 3.8% yoy
- Secondary Industry: Growth slowed to 4.8% yoy from 5.9%
- Tertiary Industry: Growth rose to 5.7% yoy
Policy Backdrop and the Outlook for H2 2025
Despite strong first-half numbers, the report signals caution for the remainder of the year. Higher US tariffs are expected to take effect from August, potentially elevating tariff rates to the 40-60% range, using US-Vietnam trade as a proxy. The government is expected to further fine-tune policies after the July Politburo meeting, with an emphasis on supporting the beleaguered real estate sector and shoring up domestic demand.
A >Rmb6 trillion bond quota remains largely unissued, making further quota increases unlikely at this stage. However, in light of resilient H1 growth, the full-year 2025 GDP forecast has been revised up to 4.7%.
Detailed Breakdown: Economic Activity Data
| Indicator |
Jun 25 |
Consensus |
May 25 |
| FAI YTD (% yoy) |
2.8 |
3.6 |
3.7 |
| FAI* (% yoy) |
-1.7 |
– |
2.5 |
| Property FAI YTD (% yoy) |
-11.2 |
-10.9 |
-10.7 |
| Industrial Production (% yoy) |
6.8 |
5.6 |
5.8 |
| Surveyed Unemployment Rate (%) |
5.0 |
5.0 |
5.0 |
| Retail Sales (% yoy) |
4.8 |
5.3 |
6.4 |
*UOB Kay Hian estimates
Quarterly Economic Activity
| Indicator |
2Q25 |
1Q25 |
4Q24 |
3Q24 |
2Q24 |
| GDP (% yoy) |
5.2 |
5.4 |
5.4 |
4.6 |
4.7 |
| FAI (% yoy) |
1.4 |
4.2 |
2.6 |
3.4 |
3.3 |
| Industrial Production (% yoy) |
6.2 |
6.5 |
5.7 |
5.8 |
5.9 |
| Retail Sales (% yoy) |
5.4 |
4.6 |
3.8 |
3.3 |
2.7 |
Mixed June Data: Signs of Stress and Policy Implications
- Industrial Production: Surged to 6.8% yoy in June, beating consensus (5.6%). High-tech manufacturing (+9.7% yoy) and automobile manufacturing (+11.4% yoy) led the gains, while textiles and utilities lagged. However, overall capacity utilization slipped to 74% in 2Q25 from 76.2% in 4Q24.
- Retail Sales: Growth cooled to 4.8% yoy in June, missing expectations (5.3%) and dropping from May’s strong 6.4%. Household appliances and audio-visual equipment grew 32.4% yoy, down sharply from 53.0% in May. Catering sales growth fell to just 0.9% yoy, halting a three-month recovery streak. Government subsidies remain crucial, and further funding is anticipated to sustain momentum.
- Fixed Asset Investment: YTD growth slowed to 2.8% yoy, trailing consensus (3.6%) and May’s 3.7%. The property sector was the main drag, with property FAI plunging 13.7% yoy in June (vs -12.3% in May).
Sectoral and Policy Observations
- The June data highlights rising downside pressures from trade tensions and a cooling property market, as earlier stimulus effects fade.
- Further policy support is expected, especially targeted at the property sector and industries most exposed to new US tariffs. Sector-specific measures could be rolled out in August after assessing tariff impacts.
- With resilient H1 results, forecasts for GDP, retail sales, and industrial production in 2025 have been revised upward.
Comprehensive Economic Forecast: 2024–2026
| Indicator |
2024 (UOBKH) |
2024 (Consensus) |
2025 (UOBKH) |
2025 (Consensus) |
2026 (Forecast) |
| Real GDP (% yoy) |
5.0 |
4.7 |
4.5 |
4.2 |
4.2 |
| Fixed Asset Investment (% yoy) |
3.2 |
3.0 |
4.2 |
4.0 |
4.0 |
| Industrial Production (% yoy) |
5.8 |
5.6 |
4.6 |
4.0 |
4.2 |
| Retail Sales (% yoy) |
3.5 |
5.0 |
5.0 |
5.0 |
4.8 |
| Fiscal Balance (% of GDP) |
(4.8) |
(5.0) |
(5.6) |
(5.0) |
(5.7) |
| M2 (% yoy) |
7.3 |
8.0 |
7.8 |
8.0 |
7.5 |
| Outstanding Bank Loans (% yoy) |
8.0 |
8.2 |
n.a. |
8.0 |
n.a. |
| Total Social Financing (% yoy) |
7.6 |
8.5 |
n.a. |
8.5 |
n.a. |
| 10-yr Treasury Bond Yield (%) |
1.68 |
1.50 |
1.58 |
1.50 |
1.66 |
| CPI (% yoy) |
0.2 |
0.5 |
0.3 |
0.8 |
1.0 |
| PPI (% yoy) |
(2.2) |
(1.5) |
(1.9) |
1.0 |
0.2 |
| Export (% yoy) |
4.6 |
2.0 |
1.0 |
2.0 |
(1.1) |
| Import (% yoy) |
0.9 |
1.0 |
(1.1) |
1.5 |
0.4 |
| Exchange Rate (Rmb/US\$) |
7.30 |
7.20 |
7.20 |
7.20 |
7.10 |
Analyst Team
Conclusion: Navigating the Second Half of 2025
China’s economy has maintained impressive momentum in 1H25, but rising headwinds from the US-China trade war and a weakening property sector warrant vigilance. Expect further policy adjustments aimed at stabilizing key sectors and supporting domestic demand. Investors should monitor upcoming policy announcements post-Politburo meeting and the potential impact of US tariffs on sectoral performance. The revised 4.7% GDP growth forecast for 2025 reflects optimism but also underscores the importance of ongoing policy support and adaptability in a challenging global environment.
