The cracks beneath China’s GDP

Amid the looming shadow of the China-US trade war, China’s economy grew 5.2% in Q2 2025, slightly higher than market expectations. Although economic growth for the first half of the year was at 5.3%, economists forecast a significant slowdown in China’s economic momentum for the second half of the year. In the face of weak domestic demand and escalating global trade risks, there is increased pressure on Beijing to introduce a new round of stimulus.

China’s National Bureau of Statistics (NBS) released the latest economic data on 15 July, showing GDP growth of 5.2% year-on-year in Q2 2025. This marked a slowdown from 5.4% in Q1, but slightly above the 5.1% predicted by Reuters and Bloomberg. During a press conference, Sheng Laiyun, deputy director of NBS, described the Chinese economy in the first half of 2025 as “maintaining steady growth with good momentum, showcasing strong resilience and vitality”.

Specifically, China’s value-added industrial output for enterprises above designated size increased 6.8% year-on-year in June, up 1 percentage point from May and better than the forecast of 5.6% by economists. However, total retail sales of consumer goods in June only grew by 4.8% year-on-year, a slowdown of 1.6 percentage points from May, indicating a decline in consumer momentum beyond market expectations.

According to Bloomberg’s analysis, sales of consumer goods such as beverages, tobacco, alcohol and cosmetics declined year-on-year in June, and the growth of catering services also slowed considerably, dragging down overall consumer performance. Nevertheless, the sale of home appliances, communication equipment and furniture maintained its strong growth due to government subsidies.

Consumption is the main driver of China’s GDP growth, with officials stating that final consumption expenditure contributed 52% to economic growth in the first half of the year.

Michelle Lam, Greater China economist at Societe Generale, opined that even as China’s GDP growth exceeded expectations, its economic fundamentals leave much to be desired. The current situation showed a pattern of “strong supply, weak domestic demand”, and export resilience is unlikely to last over the long term.

Tommy Xie, head of research for the Greater China region at OCBC Bank, told Lianhe Zaobao that exports and trade were the core factors spurring China’s GDP in the first half of the year. Moving into the second half, besides the uncertainties China’s economy faces due to the China-US trade war, protracted unresolved tariff issues between the US and other countries would further exacerbate the global trade slowdown and indirectly impact China’s economy.

Since US President Donald Trump announced the reciprocal tariffs in April, the US has reached various framework agreements with the UK, China and Vietnam. Currently, the US is pressuring trade partners such as the European Union and Canada to secure deals before new tariffs take effect on 1 August. Meanwhile, China and the US are in a 90-day pause that is set to expire on 12 August, with no new tariff rates agreed upon yet.

Lynn Song, ING chief economist for Greater China, assessed that while China and the US are unlikely to return to the peak tariff rates seen in April, the risk of further escalation remains. “This uncertainty will most likely continue to cap investment growth and weigh on overall confidence,” he noted.

Latest statistics also show that China’s fixed-asset investment grew 2.8% year-on-year in the first half of the year, slowing from 3.7% in the first five months. Infrastructure and manufacturing investment rose 4.6% and 7.5% respectively, but real estate development investment fell 11.2%, highlighting the persistent contraction in the property market.

Xie noted that the momentum of the real estate recovery has weakened again, dragging on China’s economy. The real estate market is closely linked to inflation trends, and with persistent sluggish prices, a continued downturn could trigger a negative feedback loop, where consumers expect further price drops and delay spending. Thus, achieving effective “reflation” will be key to future policy.

Addressing questions about the economic outlook for the second half of the year, NBS’s Sheng stated at the press conference that despite considerable external uncertainties and internal pressures from structural adjustments, GDP grew by 5.3% in the first half of the year, laying a solid foundation for meeting the annual growth target.

The Chinese Communist Party is set to hold a Politburo meeting in late July to assess the current economic situation and plan economic work for the second half of the year. Analysts suggest that due to weakening export momentum, persistent price declines and low consumer confidence, China’s economy will face greater downward pressure in the second half, making it challenging to achieve the official growth target of around 5% for the year.

Although Beijing has ramped up infrastructure spending and consumer subsidies, alongside steady monetary easing, Reuters cited analysts who believe that if economic growth slows significantly, the government may further ramp up deficit spending. Meanwhile, some observers note that the first half’s economic performance has provided policymakers with more room to manoeuvre, making the official interpretation of the current economic situation a key focus of the upcoming Politburo meeting.

In June, China’s new home prices fell at the fastest monthly pace in eight months, as property investment slumped to a historic low of 11.2% year-on-year in the first six months.

According to data released on 15 July by the NBS, new home prices in 70 major and medium-sized cities dropped by 0.3% month-on-month in June, widening by 0.1 percentage point compared with the previous month, while 56 cities saw a decline in new home prices, up from 53 in May. The second-hand housing market was equally sluggish, with prices falling in 69 cities, the worst performance since October of last year.

NBS’s Sheng said at the press conference that real estate sales are declining year-on-year in terms of volume and revenue. “This requires greater efforts to push the real estate market to halt the decline and return to stability,” he said.

The Chinese government has already introduced numerous measures to revive the real estate sector. Last month, Premier Li Qiang pledged at a State Council meeting to step up efforts to stabilise the property market and reverse its downturn. In September last year, a comprehensive package of real estate policies helped spark a recovery in the housing markets of several cities. However, the market cooled again in May this year, and residential sales continued to decline in June.

Zhang Xiaoduan, deputy dean of the Research Institute at Cushman & Wakefield, told Lianhe Zaobao that the declines in housing prices and sales in May and June are fluctuations typical of a market that is bottoming out, and do not signify a broader deterioration of the property sector.

She also emphasised the need for more supportive measures for the real estate sector. She noted that current property policies largely follow the previous direction, with “few strong or new stimulus measures”. As a result, the effectiveness of these policies in supporting the market recovery is weakening, and the broader economic foundation is not particularly strong. Against this backdrop, she said, further stimulus will be needed to ensure a steady rebound in the market.

Wang Qing, chief macro analyst at Golden Credit Rating, said real estate policies are likely to be further intensified in the second half of the year. The focus will be on increasing the acquisition of subsidised housing, advancing the renovation of dilapidated housing and urban villages, and accelerating loan disbursement for projects on the real estate “white list”. The few cities that still have home purchase restrictions are also expected to ease them further.

Gu Qingyang, an associate professor at the Lee Kuan Yew School of Public Policy (LKYSPP) at the National University of Singapore (NUS), told Lianhe Zaobao that the challenges in China’s real estate sector are not just about household income — the crux lies in expectations. He said, “People believe that housing prices may continue to fall, so they are holding back and waiting on the sidelines.”

To reverse public pessimism about the property market and quickly halt the downward spiral, he suggested that the Chinese government should step up its intervention, particularly by increasing direct government purchases of housing.

He said, “For example, the government could purchase some of the unsold housing stock and repurpose it as subsidised housing or talent housing for young people. This approach could help support the stabilisation and recovery of the real estate market.”

This article was first published in Lianhe Zaobao as “中国上半年经济逆势增5.3% 但下半年恐面对更大压力” and “中国6月份房价加速下跌 新房价格跌幅八个月来最大”.

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