Robust China GDP Growth Unable to Quell Urgent Calls for Stimulus

China’s economy exhibited unexpected resilience in early 2025, bolstered by consumer subsidies and a flurry of export shipments aimed at circumventing tariffs. However, a stalemate with Donald Trump regarding the trade conflict looms over its prospects, intensifying calls for economic stimulus.

According to government reports released on Wednesday, China’s gross domestic product expanded by 5.4% in the first quarter compared to a year prior, surpassing the anticipated growth of 5.2%. Both production and consumption demonstrated unanticipated strength in March, right before significant US tariffs on Chinese products took effect this month.

This optimistic data may provide little reassurance to policymakers, as economic activity is projected to decline starting in April. Recent cargo statistics revealed a slowdown in the volume of goods processed at Chinese ports, indicating a potential downturn in trade as global firms pause orders and cut back on production.

Michelle Lam, Greater China economist at Societe Generale SA, stated, “The positive developments are now behind us. The necessity for stimulus is quite urgent. There is a risk of rapid deterioration as high-frequency data reveals the impact of tariffs on shipments headed to the US.”

Reflecting the prevailing fears around tariffs, Chinese stocks in Hong Kong saw losses extend up to 3.3%. The yuan remained stable at 7.3297 in the offshore market, while the yield on 10-year government bonds decreased by 2 basis points to 1.63%.

The data released by the National Bureau of Statistics appears to show that the economy was partially supported by preemptive shipments ahead of this month’s drastic tariff increases.

Without additional stimulus, China may face challenges in achieving its official growth objective of approximately 5% for the year. Exports are projected to decline after having contributed to one-third of growth in 2024, and both business and consumer confidence are likely to be affected by the trade conflict.

Economists from major international banks, including UBS Group AG, Goldman Sachs Group Inc., Citigroup Inc., and Societe Generale, have recently revised their forecasts for China’s 2025 growth downward, estimating it to be around 4% or less. Following the release of data, Australia & New Zealand Banking Group announced a similar downgrade.

The trajectory of the Chinese economy this year will largely hinge on the extent and swiftness of stimulus measures rolled out by Beijing. A crucial aspect will be the durability of the rebound in consumer spending, which has been buoyed by subsidies for purchasing vehicles, household appliances, and smartphones.

Several economists anticipate that the People’s Bank of China may lower interest rates or reduce the reserve requirements for banks as early as this month, while others have predicted several trillion yuan in additional fiscal borrowing and spending to offset the shortfall caused by declining exports.

According to Lu Ting, chief China economist at Nomura Holdings, the government could also assist exporters through expedited tax rebates or by offering lower interest loans.

A meeting by the Communist Party’s decision-making Politburo at the end of April is likely to offer further insights into policymakers’ strategies concerning the timing and magnitude of stimulus. With the recent positive data, there is a risk that officials may delay action until growth hits a critical point.

Zhang Zhiwei, chief economist at Pinpoint Asset Management, remarked, “The government may choose to wait and assess the severity of the export decline before responding.”

An Encouraging Start

Data disclosed on Wednesday indicated that industrial production surged by 7.7% in March compared to the previous year, marking the fastest increase since June 2021. Retail sales also rose by 5.9%, demonstrating the strongest growth since December 2023 and significantly surpassing the 4.3% increase that economists had predicted.

Even amid these positive indicators, the NBS conveyed a cautious tone, stressing the necessity for more robust support for the economy.

“The external landscape is becoming increasingly complex and harsh, and the impetus for robust domestic demand is lacking,” the bureau stated in a report. “We need to implement more proactive and effective macroeconomic policies.”

Highlights from additional key economic indicators:

• Fixed-asset investment grew by 4.2% in the first quarter of 2025, while property investment decreased by 9.9%. Both trends were largely consistent with predictions.
• The urban unemployment rate was recorded at 5.2% in March, down from 5.4% in the prior month.

The unexpected progress in the industrial sector aligns with a rise in exports during March. Production of computers and other electronic devices surged by 13% year-on-year. Output of steel, cement, and electricity also accelerated, bolstered by the government’s push to initiate infrastructure projects earlier in the year.

In terms of consumption, sales of home appliances and furniture led the growth, with sales increasing by about 30% in March compared to last year, aided by government subsidies. However, some goods that did not receive subsidies, such as cosmetics and clothing, only saw modest growth, indicating potential vulnerabilities in underlying consumer sentiment.

Spending on dining and catering reached its fastest growth in a year, attributed to various local governments introducing discount vouchers to stimulate dining out and tourism spending.

The government is increasingly focusing on services as a potential avenue for economic growth, having previously emphasized measures to boost expenditure on goods. In a work plan released on Wednesday, authorities, including the Ministry of Commerce, outlined 48 initiatives to encourage household spending in areas such as catering, healthcare, entertainment, tourism, and sports.

What Bloomberg Economics Says…

“Looking ahead, conditions appear to be considerably more challenging, with elevated US tariffs likely to hinder external demand. We anticipate that policymakers will urgently ramp up stimulus, front-loading this year’s substantial budget, while also decreasing rates and reserve requirements.”

— Chang Shu and David Qu

The ongoing economic challenges are reflected in persistent deflation, with the GDP deflator—a comprehensive gauge of prices across the economy—declining for the eighth consecutive quarter. This streak marks the longest since the quarterly data collection commenced in 1993.

Emphasizing the immediate need to bolster domestic demand, Premier Li Qiang visited a consumer goods exhibition in Beijing on Tuesday. He urged business leaders to unite in overcoming difficulties and actively diversifying markets, including compensating for export losses with domestic sales. He stressed the importance of stabilizing employment, enhancing income, strengthening social security to promote spending, and guiding companies toward healthy competition.

Li was also briefed by the city government regarding initiatives to purchase unsold properties, promising to “assess and implement new supportive policies promptly.” The property market still has a long way to go before achieving stability, as indicated by the latest data.

“China can only rely on domestic consumption for growth,” remarked Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group. “The retail sales figure is promising. The sustainability of this growth depends on the scale and speed of the stimulus measures.”

© 2025 Bloomberg

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