Agencies
While China’s economy has shown considerable resilience through a turbulent first half of 2025 – navigating the dramatic twists and turns of US trade policy while maintaining steady growth - experts warn Beijing’s challenges are far from over.
Although many believe the country can still hit its annual goal of “around 5 per cent” for gross domestic product growth, more pressure points are expected to emerge in the latter half of the year.
After the bilateral trade war saw a temporary de-escalation following separate rounds of talks in Geneva and London, ratings agency Fitch raised its full-year forecast for China’s economy from 3.9 per cent to 4.2 per cent, even without the details of the framework to which the two countries had agreed.
Other institutions remain more cautious, with Barclays holding to its below-consensus projection of 4 per cent.
While forecasts vary, financial institutions broadly agree on the challenges ahead - a downturn in exports, persistent sluggishness in the property sector, weak domestic demand and inefficiencies in the labour market.
Although the decline in China’s shipments to the US has been partially offset by heightened trade with a more diversified set of partners, Barclays forecast that export growth will slow to zero in the second half of the year, owing to a payback effect from a front-loading of orders in the first half and a projected slowdown in US consumer spending.
China Galaxy Securities was less optimistic, predicting that exports in the next six months will contract, with an ultimate annual growth rate of around 1.5 per cent.
The world’s second-largest economy saw its exports rise by 6 per cent year-on-year in the first five months of 2025, outpacing last year’s 2.7 per cent growth.
However, according to customs data, exports to the US fell by 9.4 per cent, despite a wave of orders following the 90-day tariff truce agreed to in Geneva.In the same period, China’s shipments to the European Union and Southeast Asia jumped by 6.8 per cent and 12.1 per cent respectively.
Even if China and the US were to eventually reach a more permanent agreement, a resolution is unlikely to come soon due to the sheer number of issues at stake, said Goldman Sachs in a research note.
The investment bank predicted the current US effective tariff rate on China – around 39 per cent – will remain in place for the rest of the year.
The ailing property sector, which may have yet to reach its bottom, remains a significant concern for the second half of the year. Recent trends, including two straight years of decline in new home prices, suggest the sector could continue its slide.
In May, new and second-hand house prices across 70 cities contracted at their fastest monthly rate in seven and eight months, respectively. Meanwhile, real estate investment plunged 10.7 per cent in the first five months of 2025.
“Stabilising housing prices remains a very important goal. Property represents 60-70 per cent of China’s household balance sheets.
As long as this does not turn around, it’s difficult to expect a substantive and sustainable recovery in sentiment,” said Lynn Song, chief Greater China economist at ING, in a note.China’s consumption has surpassed expectations this year, thanks in part to a governmental trade-in programme which has spurred retail growth over the past three quarters.
However, without additional funding for the programme, retail sales growth may level off in the second half of the year as subsidies run out, according to a note from Gavekal Dragonomics.Consumption is also being weighed down by a lacklustre labour market, which the CGS report described as a “core concern” for the remainder of the year.
In addition to the negative effects of the trade war, the job market must also contend with a record number of new graduates – more than 12.2 million – entering the workforce.
Despite these difficulties, stimulus measures are not expected to materialise until the third quarter, which Goldman Sachs has described as an “eventful window” for China.
During this period, several critical developments are set to unfold – including the end of the 90-day window for the China-US tariff truce and the July meeting of the Communist Party’s Politburo, a major decision-making body.
Analyst outlooks suggest new policy measures may be rolled out late in the third quarter - even sooner, they said, if the uneasy peace in trade breaks down or if the export or property sectors take an unexpected nosedive.
President Xi Jinping reiterated the need for China to develop a “unified national market” at the sixth meeting of the Central Financial and Economic Affairs Commission on Tuesday, explicitly recommending a crackdown on the cutthroat competition between firms that has lowered prices, a phasing out of obsolete industrial capacity and an improvement of the business environment.
“Building a unified national market is a requirement for high-quality development, and the country should strengthen coordination and cooperation to form a concerted effort,” Xi was quoted as saying by state news agency Xinhua.
