China’s Economy Grows 5.2% in Q2 Despite Tariff Heat, But Consumer Demand Flags

China’s economy expanded by 5.2 per cent year-on-year in the second quarter of 2025, narrowly missing the previous quarter’s 5.4 per cent pace but outperforming expectations of a deeper slowdown amid mounting tariff pressures from the United States.

The quarterly growth figure — 1.1 per cent from April to June — exceeded the 0.9 per cent forecast, according to data released by the National Bureau of Statistics (NBS) and cited by Reuters.

The first-half performance puts China’s overall GDP growth at 5.3 per cent for H1 2025, keeping Beijing broadly on track to meet its annual target of around 5.0–5.5 per cent, even as US President Donald Trump’s revived trade war cast a long shadow over the country’s industrial outlook.

Export Engine Keeps Rolling

China’s export sector continued to outperform expectations, providing a crucial lift to GDP. According to official customs data released Monday, exports rose 5.8 per cent year-on-year in June, up from 4.8 per cent in May.

This surge was partly driven by a temporary suspension of steep US tariffs, as Washington and Beijing resumed trade talks. The reprieve allowed Chinese exporters to rush shipments before any new levies were imposed. Additionally, Chinese firms increasingly routed exports through offshore manufacturing bases and third countries, softening the impact of US restrictions. “A wave of orders came in following the tariff pause, as American businesses stocked up in anticipation of future duties,” said a source familiar with the trade data.

Policy Support and Macro Stability

Despite the external pressures, the NBS said the Chinese economy demonstrated “strong resilience and vitality” due to a combination of proactive fiscal and monetary policies rolled out earlier this year.

Infrastructure spending, low-interest credit channels, and targeted subsidies for manufacturing helped stabilise investment. However, the stimulus measures have not yet reignited robust domestic consumption — a key pillar of Beijing’s long-term economic rebalancing strategy. “Generally speaking, with the more proactive and effective macro policies taking effect … the national economy maintained steady growth with good momentum,” the NBS said in its quarterly bulletin.

Consumer Weakness Persists

While exports surged, consumer prices declined by 0.1 per cent in the first half of 2025, highlighting weak domestic demand — a persistent headache for Chinese policymakers. The fall in prices reflects sluggish retail activity, cautious household spending, and stagnation in services.

A drop in prices across key sectors — from consumer electronics to basic food staples — has raised concerns of incipient deflation, something China is keen to avoid given its debt-heavy private sector and reliance on nominal GDP growth. “There is an urgent need to revive household confidence and stimulate private consumption,” said Professor Li Cheng, economist at Peking University, noting that deflationary risks could undercut recovery prospects if not addressed swiftly.

Trade War Backdrop

The latest economic data arrives just weeks after President Trump imposed new tariffs on select Chinese goods, reigniting a conflict that has haunted global markets since 2018. The new round of tariffs, mostly targeting Chinese tech components and green energy products, has sparked retaliatory threats from Beijing.

However, China appears to have weathered the early blow by diversifying its export base, ramping up shipments to Southeast Asia, Latin America, and Europe. China’s offshore processing model, whereby components are shipped out and reassembled in third countries before export to the US, has also provided a buffer. “Exporters are adapting fast, and the government’s trade diversification policy is showing results,” said Zhao Yang, senior economist at Nomura Holdings, in a client note.

Looking Ahead: Growth Uncertainty Remains

While the Q2 growth figure offers reassurance, analysts warn that momentum may not hold in the second half of the year unless consumer sentiment picks up and trade tensions de-escalate.

Real estate activity — another traditional driver of Chinese growth — remains subdued, and youth unemployment is reportedly climbing, though official figures have been withheld since mid-2023.

Several think tanks, including the China Development Forum, expect Beijing to introduce a fresh round of demand-side stimulus in Q3, potentially including consumption vouchers, tax breaks, and home-buying subsidies.

Beijing is also likely to continue lobbying Washington for tariff relief, particularly in sectors where Chinese exports dominate global supply chains.

China’s economic growth of 5.2 per cent in Q2 underscores the resilience of its export machine, but the cooling consumer market casts a shadow over its long-term ambitions. If the government fails to reboot domestic demand, the world’s second-largest economy may remain vulnerable to external shocks — especially as geopolitical tensions mount heading into the US presidential elections.