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China’s Gross Domestic Product (GDP) grew by 5.4% year-on-year in the first quarter, surpassing analysts' expectations of 5.1%, marking the strongest pace in one and a half years. However, the economic outlook remains uncertain due to mounting pressures from Trump’s tariffs.
“With the continued implementation and effectiveness of various macroeconomic policies, the national economy has made a steady start and had a good beginning to the year,” stated China’s National Bureau of Statistics (NBS). However, the agency also highlighted the challenges ahead: “The current external environment has become increasingly complex and challenging, while domestic effective demand lacks sufficient momentum. The foundation for the continued economic recovery and improvement still needs to be strengthened.”
China ramps up stimulus measures to bolster economic growth
Beijing has unveiled further stimulus measures to bolster the economy as trade tensions with the United States escalate. At its annual government meeting in January, China set an economic growth target of 5% for 2025, while raising its budget deficit to 4% of GDP—the highest in three decades—aligning with the “highly proactive” fiscal stance previously announced. The strong momentum in first-quarter growth suggests these stimulus measures may be starting to take effect.
Other major economic indicators also exceeded estimates in March, ahead of Trump’s imposition of 145% tariffs on goods from China. Industrial output expanded by 7.7% year on year—beating the forecast of 5.9%—and marked the fastest pace since June 2021. Meanwhile, retail sales rose 5.9%, well above the 4.3% projected by economists, and represented the strongest increase since December 2023.
Retail sales are seen as a key gauge of China’s economic trajectory. The country continues to grapple with sluggish domestic demand, stemming from housing market woes and the lingering effects of the pandemic. In response, China lowered its inflation target from 3% to 2% for 2024 and introduced measures such as government subsidies and initiatives to raise household income in an effort to boost consumer spending.
Additionally, China’s fixed asset investment—covering sectors such as real estate, infrastructure, and manufacturing—rose 4.2% in the first three months. However, property investment fell by 9.9%, underscoring ongoing fragility in the housing market. The unemployment rate declined to 5.2% in March from 5.4% in the previous month.
Chinese stock markets stall as Yuan holds flat against the dollar
Despite the release of strong economic data, Chinese equity benchmarks remained downbeat amid an escalating US-China trade war. As of 5:21 am CEST, the Hang Seng Index had fallen by 2.6%, the China A50 index slid 0.74%, and the mainland Shanghai Composite Index was down 0.92%.
“As far as China's data goes, it was obviously quite good. But like with everything at the moment, backward-looking data are being disregarded or at least taken with a big pinch of salt. It captures a period prior to the implementation of tariffs and the slowdown that will incur,” Kyle Rodda, a senior market analyst at Capital.com Australia, said in an email.
The Chinese offshore yuan was little changed against the US dollar, with the USD/CNH pair up 0.02% at 7.33—hovering near its highest level since 2007. The yuan tumbled to a record low earlier this month, with its exchange rate against the dollar climbing above 7.4 on 9 April amid intensifying trade tensions with the US.
