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Overview: China's Economy Defies Global Headwinds
China's economy demonstrated remarkable resilience in the first half of 2025, maintaining steady growth despite escalating trade tensions with the United States under former President Donald Trump's renewed trade policy rhetoric. GDP expanded by 4.8% year-on-year in the second quarter, bolstered by strong domestic consumption, robust manufacturing activity, and rising exports to emerging markets.
This continued expansion underscores China's strategic shift towards internal demand, regional trade partnerships, and industrial upgrading—offsetting the impact of punitive U.S. tariffs and capital outflows.
Key Macroeconomic Indicators: Stable and Strategic Expansion
| Indicator | Q2 2025 Performance |
|---|---|
| GDP Growth (YoY) | 4.8% |
| Retail Sales Growth | 5.5% |
| Fixed-Asset Investment | 3.2% |
| Industrial Output | 6.1% |
| Export Growth | 7.4% |
| Unemployment Rate | 5.0% |
China’s stable economic metrics demonstrate the country’s ability to absorb external shocks. Key sectors such as green energy, semiconductors, and electric vehicles (EVs) are leading the transformation of its industrial base.
Domestic Demand Driving Growth
Retail sales rose 5.5% in Q2 2025, signaling stronger consumer confidence fueled by wage growth, targeted fiscal stimulus, and easing credit conditions. Major cities reported higher spending in consumer electronics, online services, and travel-related sectors, with Tier-2 and Tier-3 cities driving much of the momentum.
The government's "dual circulation strategy", emphasizing domestic demand and self-reliant supply chains, continues to bear fruit.
Key Domestic Demand Highlights
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EV sales surged 22% YoY, bolstered by new subsidies and rural market penetration.
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Tourism rebounded to 2019 levels, with over 650 million trips during May Day holidays.
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Digital economy accounted for 42% of GDP, driven by AI, fintech, and cloud services.
Manufacturing and Exports Remain Robust Despite Tariffs
China's industrial output rose 6.1%, with standout performance in high-tech manufacturing, especially in semiconductors, robotics, and EV components. Despite U.S.-imposed tariffs on certain goods, exports increased by 7.4%, led by shipments to Southeast Asia, Africa, and Latin America.
Strategic Export Diversification
China expanded its trade reach beyond traditional Western partners. In Q2 2025:
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ASEAN surpassed the EU as China’s largest trading bloc.
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Bilateral trade with Brazil, India, and South Africa grew by over 12%.
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RCEP agreements fueled smoother regional trade, especially with Vietnam and Malaysia.
Investment Trends: Shifting from Real Estate to High-Tech
While the real estate sector remains subdued, the economy saw robust capital flows into high-tech infrastructure, clean energy, and AI research.
Foreign direct investment (FDI) into China’s tech sector rose by 8.9%, with European and Middle Eastern investors compensating for reduced U.S. capital. The government's "New Productive Forces" agenda aims to increase value-added manufacturing while reducing dependency on foreign technologies.
Labor Market: Steady Improvement and Youth Employment Initiatives
The national unemployment rate remained stable at 5.0%, with urban employment improving due to expanding services and manufacturing sectors. The government launched targeted programs to address youth unemployment, including internships, SME support, and vocational training.
Youth Employment Strategy 2025:
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1 million new tech internships funded nationally.
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Tax incentives for startups hiring graduates.
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National Career Cloud Platform launched to match skills with demand.
Currency and Inflation: Controlled Stability
The renminbi (RMB) remained relatively stable against the U.S. dollar, trading within the 7.1–7.3 range, despite increased market volatility. China's Consumer Price Index (CPI) remained moderate at 1.6%, while the Producer Price Index (PPI) fell slightly due to lower commodity costs.
Monetary policy continues to balance liquidity with financial risk control, with the People’s Bank of China (PBOC) maintaining targeted interest rate cuts and support for SMEs and green financing.
U.S.-China Trade Conflict: Strategic Deterrence over Confrontation
Former President Trump's revived trade rhetoric in 2025—including threats of 60% tariffs—had limited immediate economic impact on China due to pre-emptive diversification efforts and supply chain resilience. However, China has taken a defensive stance:
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Strengthened ties with BRICS and Belt and Road nations.
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Accelerated development of yuan-settled trade mechanisms.
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Legal counters via WTO and regional trade arbitrators.
China's policy approach has shifted from confrontation to strategic deterrence, using economic leverage, regional coalitions, and innovation-led competitiveness to neutralize pressure.
Looking Ahead: China's 2025 Outlook and Growth Trajectory
China is on track to meet its 5% GDP growth target for 2025. Key growth drivers for H2 2025 include:
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Mass AI adoption across logistics, healthcare, and finance.
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Continued rollout of national EV charging networks.
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Expansion of China-Europe freight rail via Central Asia.
With major infrastructure and digital transformation projects underway, China aims to achieve high-quality growth, reduce reliance on U.S. supply chains, and lead in next-generation industries.