China’s economy recorded a higher-than-expected growth rate in the second quarter of 2025, with exports—particularly to markets outside the US—offsetting weak domestic consumption, according to official data released Tuesday by the National Bureau of Statistics (NBS).

Gross domestic product (GDP) rose 5.2% year-on-year during the April–June period, following a 5.4% increase in Q1. The figure exceeded the median forecast of 5.1% from economists surveyed by Bloomberg.

However, major Chinese stock indices in Hong Kong and mainland China pared early gains after the data release, while the yuan and 10-year government bond yields remained stable.

Strong Output, Weak Spending

Industrial production rose 6.8% in June, beating the forecast of 5.6%. In contrast, retail sales increased by just 4.8%, falling short of expectations. Manufacturing output jumped 7.4%—the fastest pace in three months—while consumer spending showed signs of weakening, particularly in beverage, tobacco, cosmetics, and food services sectors. On the other hand, sales of home appliances, furniture, and telecom equipment moved higher, supported by state subsidies.

According to the NBS, consumption contributed just over 52% to GDP growth in Q2, up from early 2025 levels but down from over 60% a year ago.

Deflation and Investment Fatigue

China’s GDP deflator—a broad measure of price levels—fell for the ninth consecutive quarter, marking the longest decline since 1993.

Other key indicators:

• Fixed asset investment rose 2.8% in H1

• Real estate investment declined by 11.2%

• Urban unemployment remained at 5% in June

In its statement, the NBS described the Chinese economy as "resilient, with strong momentum," but warned of "many unstable and uncertain external factors" and "insufficient domestic demand."

Despite a 24% drop in exports to the US in Q2, total exports increased, driven by fiscal policies that bolstered construction activity. This advantage gives Beijing time to prepare further stimulus in case of renewed trade tensions with Washington after the current tariff truce ends in mid-August.

Bloomberg analysts forecast full-year growth to ease to 4.6%, below the official 5% target.

The People’s Bank of China continues to avoid broad-based monetary easing, favoring targeted lending tools for strategic sectors to avoid excess liquidity. Government subsidies—funded through long-term special bonds—boosted purchases of smartphones and appliances and spurred business investment.

State media reported that central and local authorities still have capacity to issue more than 7 trillion yuan ($976 billion) in bonds by year-end to support growth.

Risk of Deflation and Real Estate Stalemate

The economy remains under threat from weak domestic demand, industrial overcapacity, and a lingering crisis in the property sector. “Deflation remains the primary threat,” said Raymond Yeung, Chief Economist for Greater China at Australia & New Zealand Banking Group. “Disappointing retail data and weak property indicators show that subsidies alone are insufficient for a sustainable consumption recovery.”

As speculation grows about new measures to support the housing market, some analysts expect Beijing to revive semi-fiscal tools to stimulate demand. Others argue that if US tariffs increase, consumer support must be significantly ramped up.

“It’s hard to maintain growth momentum,” said Wei Chen Ho, an economist at United Overseas Bank. “The need for stronger support will resurface by year-end, when comparisons with the strong first-half base will trigger a sharp slowdown.”