How China propelled a 5.4% start

Muhammad Zamir Assadi

China’s economy kicked off 2025 on a strong footing, with first-quarter GDP rising by 5.4% year-on-year to 31.88 trillion yuan (~$4.35 trillion), ahead of the forecast of 5.1% by a Reuters poll of 57 economists earlier this month.

This outturn contrasts sharply with a cooling global backdrop: the IMF has cut its 2025 world-growth forecast to 2.8% on April 22, citing soaring trade-war uncertainty and policy drift.

China’s Domestic Engines

Launching into 2025, China's domestic economy demonstrated dual momentum in Q1, with industrial production and consumer spending both posting solid growth. Industrial output rose 6.5% year-on-year in Q1. Retail sales grew by 4.6% year-on-year to 12.47 trillion yuan, up 1.1% from 2024, reflecting robust factory restocking and a consumer-goods trade-in scheme.

Quarterly data revealed that value-added output of China’s equipment manufacturing surged 10.9%, while high-tech manufacturing rose 9.7%, underscoring a strategic tilt toward innovation —semi­conductors, AI-powered robots and renewable-energy solutions are driving this momentum. Fixed-asset investment rose 4.2%, led by infrastructure and high-tech spending, though property-sector outlays fell 9.9%.

Yielding not to external pressures, the country’s trade sector also demonstrated remarkable resilience. Customs data reveal yuan-denominated exports up 6.9% in Q1, despite U.S. tariffs at 145%, while imports shrank 6.0%—a sign of persistent external demand even as domestic consumption softens.

Global Slowdown

Looking around, economic indicators as of April 2025 show subdued performance across major economies.

Business surveys signal a marked slowdown in the USA. April’s S&P Global flash U.S. Composite PMI slid to 51.2, the weakest in 16 months, as firms wrestle with tariffs and cost pressures.

In Euro area, Hamburg Commercial Bank's (HCOB) preliminary composite euro zone Purchasing Managers' Index for April registered a composite reading of 50.1—just above stagnation—while services dipped into contraction at 49.7, underlining faltering domestic demand and trade-related anxieties.

The World Bank and IMF have trimmed India’s 2025 growth forecast to around 6.2–6.3%, as global policy uncertainty and tighter U.S. tariffs damp private investment.

On April 24, South Korean official data showed a 0.2% quarter-on-quarter contraction, the first time since Q2 2024, driven by weak exports and consumption amid U.S. tariff measures, prompting calls for further Bank of Korea easing.

Trade Headwinds

However, China’s growth story is not without caveats.

The IMF has lowered its 2025 growth forecast for China to 4%, warning of a deteriorating outlook where downside risks predominate, marking a downward revision from its January projection of 4.6% growth. And further on-and-off U.S. tariff escalations are potentially on the horizon.

Back home, China's economy faces several structural issues. Effective demand, particularly consumer demand, remains insufficient. Additionally, microeconomic entities lack vitality, with widespread issues such as delayed payments and significant local government debt burdens, not to mention a deeper property downturn and demographic drag.

These factors have become critical challenges that macroeconomic policies need to address urgently.

Policy Response

Can China’s GDP pull off the impossible for the next three quarters?

Laying the groundwork to address mounting challenges, China's fiscal policies for 2025 have been strategically designed to address these pain points and developmental shortcomings. Its monetary policy remains accommodative as the People's Bank of China keeps benchmark lending rates steady for the sixth straight month. The one-year and five-year loan prime rates were held at 3.1% and 3.6% respectively in April.

Quickening its policy response, Beijing raised its budget deficit target and increasing special bond issuance. The government has set a 2025 deficit target of around 4% of GDP and plans to issue 1.3 trillion yuan ($182 billion) in ultra-long special treasury bonds, up 300 billion yuan from 2024 levels.

Yearning for sustainable growth, China is keenly aware that opportunities lie in accelerating the green transition, deepening digital-economy reforms, and pushing forward state-enterprise and financial liberalisation to unlock private investment and productivity gains.

In sum, China’s 5.4% Q1 growth underscores its resilience in a slowing world. Yet sustaining that momentum demands careful calibration—enough stimulus to support demand, yet restraint to ward off fresh debt and asset risks. As global headwinds intensify, Beijing must keep its policy choreography nimble, marrying short-term support with medium-term reforms to ensure that China’s economy not only weathers the storm but emerges more balanced and innovation-led.