What's happened
China's Q2 GDP growth exceeded forecasts at 5.3%, driven by exports despite US tariffs. However, domestic demand weakens, retail sales slow, and sectors like real estate and agriculture face ongoing challenges amid deflation and overcapacity. Policymakers focus on boosting internal demand and stabilising markets.
What's behind the headline?
China's recent GDP figures reveal resilience in headline growth, but underlying weaknesses threaten sustained recovery. The slowdown in retail sales and decline in property investment highlight fragile domestic demand. The government’s focus on rebalancing the economy toward consumption is crucial, yet high savings rates, high unemployment, and deflationary pressures hinder progress. The ongoing trade tensions with the US and EU, especially over support for Russia and export restrictions, further complicate the landscape. China's strategy to foster technological innovation and support entrepreneurs aims to offset external headwinds, but success depends on addressing structural demand issues. The risk remains that without bold reforms, deflation and overcapacity could deepen, stalling growth and impacting global supply chains.
What the papers say
The South China Morning Post reports that China's GDP growth in Q2 surpassed forecasts at 5.3%, with exports rising 5.9% in the first half of 2025, despite US tariffs. However, domestic demand shows signs of weakening, with retail sales slowing and property investment declining by 11.2%. Analysts warn that internal demand remains insufficient, and deflationary pressures persist, driven by high inventory levels and weak consumer confidence. Meanwhile, the EU and US criticize China's trade practices and export restrictions, especially on rare earths, which threaten global supply chains. The Chinese government continues to promote policies aimed at boosting consumption and innovation, but structural challenges like high savings, unemployment, and overcapacity remain significant hurdles. The overall picture suggests a cautious recovery with substantial risks ahead.
How we got here
China's economic recovery has been uneven, with efforts to rebalance growth away from exports and real estate towards domestic consumption. Persistent deflation, high inventory levels, and external trade tensions, especially with the US and EU, have complicated the outlook. The government has introduced subsidies and policies to stimulate demand, but structural issues remain.
Go deeper
- What policies is China implementing to boost domestic demand?
- How will external trade tensions affect China's growth?
- What role does innovation play in China's future economy?
Common question
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What Are China's Main Economic Challenges Right Now?
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What Do the Latest Numbers Say About China’s Economy in 2025?
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