China's Economic Growth Defies Expectations in Early 2025

Despite mounting external pressures, China's economy is demonstrating unexpected strength at the start of 2025. According to the Oficina Nacional de Estadísticas (ONE), the nation's GDP surged by 5.4% in the first quarter. This figure surpasses many analysts' projections, which had anticipated a 5.1% increase. This positive performance is placing China in a favorable position to achieve its official growth target of around 5% for the year.

Key Factors Driving Growth

The growth in the first quarter is being fueled by a resurgence in manufacturing and consumer activity. Industrial output saw a significant boost, increasing by 6.5% year-on-year during the first three months, and accelerating to 7.7% in March. This surge is partly attributed to a rush of advance orders from overseas, aiming to avoid the implementation of new tariffs. Furthermore, Chinese exports grew by 6.9% year-on-year in the first quarter, with a notable 13.5% spike in March.

Navigating Trade Tensions with the United States

However, the escalating trade conflict with the United States is casting a shadow over the economic outlook. Since Donald Trump's return to the White House, trade tensions have intensified, with China remaining the primary target of U.S. tariff policies. Washington has raised tariffs on most Chinese products to as high as 145%, with further tariffs on technological goods pending. In response, Beijing has implemented similar tariff hikes, bringing the effective rate to 125%. These trade dynamics are being meticulously followed by international economic observers.

China Appoints New Trade Negotiator

In a strategic move amidst these trade tensions, China has appointed Li Chenggang as its new international trade representative within the Ministry of Commerce. Li is succeeding Wang Shouwen, who was involved in the negotiations that led to the 2020 trade agreement with the United States. As reported by South China Morning Post, the appointment of Li, a seasoned negotiator with expertise in law and economics, is being interpreted as an effort to revitalize dialogue with Washington. His understanding of the intricacies of the World Trade Organization (WTO) and his connections with key stakeholders could provide fresh momentum to the negotiations. Karoline Leavitt, the White House Press Secretary, has stated that «the ball is in China's court; they need to reach an agreement with us, not the other way around.»

Domestic Strategies for Sustainable Growth

To offset the anticipated slowdown in foreign trade in the coming months, Beijing is focusing on stimulating domestic consumption and strengthening fiscal support. The government has pledged to increase the deficit and boost infrastructure spending, recently announcing a 30-point plan to encourage household spending. Retail sales, a vital indicator of domestic demand, rose by 4.6% year-on-year in the first quarter, accelerating to 5.9% in March.

Challenges in the Real Estate Sector

Despite these positive indicators, the real estate sector continues to weigh on economic growth. Investment in this sector fell by 9.9% year-on-year in the first quarter, a slightly deeper contraction than the 9.8% decline recorded in the same period last year. Furthermore, the ONE has reported that new home prices remained stagnant in March. This loss of confidence in the real estate sector, which has historically been a cornerstone of China's economic expansion, is being partially offset by investment in fixed assets, which grew by 4.2% between January and March.

Expert Opinions and Future Outlook

Xu Tianchen, a senior economist at The Economist Intelligence Unit, views the 5.4% GDP growth as «a very good start» to the year, but cautions that, as in previous years, «the second quarter could disappoint if there is no decisive and timely policy response». Premier Li Qiang has promised new stimulus measures, and the Politburo, the Communist Party's top decision-making body, is expected to convene before the end of April to define the economic agenda for the coming months. Several financial institutions are adjusting their forecasts accordingly.

Revised Economic Growth Forecasts

  • Goldman Sachs recently revised its 2025 growth forecast for China's economy downward from 4.5% to 4%, and its 2026 forecast from 4% to 3.5%. Analysts noted that «increased tariffs on Chinese goods will have a significant impact on the Chinese economy and labor market.»
  • UBS also adjusted its forecast downward, from 4% to 3.4%, considering a scenario in which high U.S. import tariffs remain in place.

China is actively navigating complex economic challenges, leveraging domestic strategies while addressing trade tensions and adapting to evolving global dynamics.