Introduction
China’s economy demonstrated remarkable resilience in the first quarter of 2025, posting a stronger-than-expected GDP growth of 5.4% year-on-year. This performance, which matched the previous quarter’s pace and exceeded market expectations of 5.1%, comes at a critical juncture as the world’s second-largest economy faces mounting external pressures and ongoing domestic challenges.
The strong Q1 figures were driven by robust industrial output, improving consumer spending, and a surge in exports as manufacturers rushed to ship goods before the implementation of higher U.S. tariffs. However, beneath these headline numbers lies a more complex picture of an economy at a crossroads, with significant headwinds on the horizon.
Figure 1: China’s key economic indicators for Q1 2025 showing year-on-year growth rates
GDP and Sectoral Performance
China’s GDP reached 31,875.8 billion yuan (approximately $4.36 trillion) in Q1 2025. On a quarter-on-quarter basis, the economy grew by 1.2%, slightly lower than the 1.6% expansion recorded in Q4 2024 but still indicating steady momentum.
The breakdown by industry reveals a balanced growth pattern, with the secondary industry (manufacturing and construction) leading the expansion at 5.9% year-on-year, followed by the tertiary industry (services) at 5.3%, and the primary industry (agriculture) at 3.5%.
Figure 2: Breakdown of China’s Q1 2025 economic growth by primary, secondary, and tertiary industries
While the strong first-quarter performance keeps China on track to meet its annual growth target of “around 5%” set by Premier Li Qiang, the path forward appears increasingly challenging. Major financial institutions have already begun downgrading their full-year growth forecasts, primarily due to the expected impact of escalating U.S. tariffs on Chinese exports.
| Quarter | QoQ Growth (%) | YoY Growth (%) |
|---|---|---|
| Q1 2024 | 1.3 | 5.0 |
| Q2 2024 | 1.0 | 4.7 |
| Q3 2024 | 1.4 | 4.9 |
| Q4 2024 | 1.6 | 5.4 |
| Q1 2025 | 1.2 | 5.4 |
Table 1: China’s quarterly GDP growth rates showing both quarter-on-quarter and year-on-year changes*
Industrial Output and High-Tech Manufacturing
China’s industrial sector showed impressive strength in Q1 2025, with the total value added of industrial enterprises above designated size growing by 6.5% year-on-year, an acceleration of 0.7 percentage points from 2024’s pace. March witnessed an even more remarkable surge, with industrial output jumping 7.7% year-on-year—the fastest pace since June 2021.
High-tech and advanced manufacturing segments led this expansion, reflecting China’s strategic pivot toward innovation-driven growth and technological self-reliance. Equipment manufacturing surged by 10.9% year-on-year, while high-tech manufacturing grew by 9.7
Figure 3: Year-on-year growth rates of key high-tech manufacturing products in Q1 2025
Several cutting-edge sectors recorded particularly impressive growth rates, with production of new energy vehicles soaring by 45.4% year-on-year, 3D printing devices by 44.9%, and industrial robots by 26.0%. These figures highlight China’s progress in developing “new quality productive forces”—a concept emphasized by President Xi Jinping that focuses on innovation-driven development in emerging industries.
Despite the strong output growth, profitability remains a concern. In the first two months of 2025, total profits made by industrial enterprises above designated size were 911.0 billion yuan, down by 0.3% year-on-year, suggesting that manufacturers continue to face margin pressures amid intense competition and a deflationary environment.
Consumer Spending and Retail
China’s retail sector showed encouraging signs of recovery in Q1 2025, with total retail sales of consumer goods reaching 12,467.1 billion yuan, representing a year-on-year increase of 4.6%—a notable acceleration of 1.1 percentage points compared to 2024. March retail sales were particularly impressive, growing by 5.9% year-on-year, the strongest performance since December 2023.
The government’s ongoing trade-in programs, which provide subsidies for purchases of certain consumer goods, have significantly impacted spending patterns. Products covered by these initiatives showed substantially stronger growth than non-subsidized categories, highlighting the dependence of consumer spending on government stimulus.
Figure 4: Comparison of retail sales growth between subsidized and non-subsidized product categories in Q1 2025
Online retail continued to expand its share of total consumption, with online retail sales reaching 3,624.2 billion yuan in Q1, up by 7.9% year-on-year and accounting for 24.0% of total retail sales of consumer goods. This ongoing digital transformation reflects changing consumer preferences and shopping habits, supported by China’s advanced e-commerce infrastructure.
Despite these positive signs, challenges remain in sustaining the momentum in consumer spending. The ongoing property market downturn continues to weigh on consumer confidence, while uncertainties related to employment and income growth may constrain discretionary spending.
Investment Patterns and Property Sector
Investment activity in China showed a mixed performance in Q1 2025, with stark contrasts between different sectors highlighting the ongoing structural transformation of the economy. Fixed-asset investment (excluding rural households) reached 10,317.4 billion yuan, growing by 4.2% year-on-year.
The investment landscape revealed a clear divergence between the struggling property sector and the dynamic growth in manufacturing and high-tech industries. While manufacturing investment demonstrated robust growth of 9.1% year-on-year and infrastructure investment increased by 5.8%, the property sector remained in deep contraction, with investment in real estate development falling by 9.9%.
Figure 5: Comparison of fixed asset investment growth rates across major sectors showing the stark contrast between manufacturing growth and real estate contraction
Investment in high-tech industries grew by 6.5% year-on-year, with particularly impressive growth in key sectors such as information services (34.4%), aerospace vehicle and equipment manufacturing (30.3%), and computer and office device manufacturing (28.5%). These figures highlight China’s determination to develop new growth drivers and reduce dependence on foreign technology in strategic sectors.
| Sector | YoY Growth (%) |
|---|---|
| Overall Fixed Asset Investment | 4.2 |
| Manufacturing | 9.1 |
| Infrastructure | 5.8 |
| Real Estate Development | -9.9 |
| High-Tech Industries | 6.5 |
| Information Services | 34.4 |
| Aerospace Manufacturing | 30.3 |
| Computer Manufacturing | 28.5 |
| Professional Technical Services | 26.1 |
Table 2: Detailed breakdown of fixed asset investment growth rates by sector in Q1 2025
Trade Performance and U.S. Tariff Impact
China’s foreign trade showed resilience in Q1 2025, with total imports and exports reaching 10,301.3 billion yuan, representing a modest increase of 1.3% year-on-year. Exports performed particularly well, growing by 6.9% to reach 6,131.4 billion yuan, while imports contracted by 6.0% to 4,170.0 billion yuan.
The strong export performance was especially pronounced in March, when goods exports jumped 12.4% year-on-year in dollar terms—the biggest increase since October—as exporters rushed to ship their products to the United States before the implementation of higher tariffs.
Figure 6: Monthly export growth trends and timeline of key U.S. tariff events affecting China’s trade performance
This export surge came against the backdrop of rapidly escalating trade tensions. President Donald Trump, who returned to office in January 2025, imposed additional levies on Chinese goods totaling 20% in February and March. The situation escalated further on April 2, when he announced “reciprocal tariffs” in response to what the U.S. administration characterizes as unfair trade practices. Currently, many Chinese exporters face additional levies as high as 145%, with the overall rate on some goods reaching 245% according to the White House.
The expected hit to exports from these unprecedented tariffs has prompted major financial institutions to downgrade their growth forecasts for China, with Nomura, UBS, and Goldman Sachs all reducing their projections for 2025 GDP growth.
Outlook and Challenges
As China navigates the remainder of 2025, policymakers face the challenging task of maintaining economic momentum amid mounting headwinds from both external pressures and domestic structural issues. The government has already increased the budget deficit to a record high of 5.66 trillion yuan to boost spending and counter the impact of rising U.S. tariffs.
| Institution | 2025 GDP Growth Forecast |
|---|---|
| Government Target | Around 5.0% |
| Nomura (Previous) | 4.5% |
| Nomura (Revised) | 4.0% |
| UBS (Previous) | 4.0% |
| UBS (Revised) | 3.4% |
| Goldman Sachs (Previous) | 4.5% |
| Goldman Sachs (Revised) | 4.0% |
Table 3: Major financial institutions’ GDP growth forecasts for China in 2025, showing downward revisions due to U.S. tariff concerns
Several significant challenges and risks could impact China’s economic performance in the remainder of 2025:
- Escalating U.S. Tariffs: The full impact of higher U.S. tariffs has yet to materialize. The temporary export surge observed in Q1 is likely to reverse as these tariffs take effect.
- Persistent Property Sector Weakness: Despite various supportive measures, the property sector continues to contract, weighing on overall investment, local government finances, and consumer confidence.
- Fragile Consumer Confidence: While retail sales showed signs of improvement in Q1, consumer spending remains heavily dependent on government stimulus rather than reflecting a broad-based improvement in confidence.
- Deflationary Pressures: China continued to experience mild deflation in Q1, with the consumer price index declining by 0.1% year-on-year and producer prices falling by 2.3%.
- Local Government Debt Concerns: The increased fiscal deficit and potential need for further stimulus raise questions about the sustainability of local government finances.
Conclusion
China’s economy demonstrated impressive resilience in Q1 2025, with GDP growing by 5.4% year-on-year despite mounting challenges. However, this strong performance was partly driven by temporary factors, particularly the export surge ahead of U.S. tariff increases, that are unlikely to be sustained in coming quarters.
As Sheng Laiyun, a deputy commissioner of the NBS, cautioned, “the foundation for a sustained economic recovery still needs to be strengthened. The external environment has become more complex and domestic demand lacks growth momentum.”
The government’s ability to stimulate domestic demand to offset potential export losses will be crucial in determining whether China can achieve its “around 5%” growth target for 2025. While additional stimulus measures are likely if growth momentum weakens, the effectiveness of these policies in generating a self-sustaining recovery remains uncertain.
In this challenging environment, China’s ongoing efforts to develop “new quality productive forces” and reduce dependence on traditional growth drivers like property investment take on added importance. The success of this structural transformation will shape not only China’s economic performance in 2025 but also its long-term development trajectory in an increasingly complex global environment.
References
Government Sources
National Bureau of Statistics of China. (2025, April 16). National Economy Maintained a Good Momentum of Growth in the First Quarter of 2025. Retrieved from https://www.stats.gov.cn/english/PressRelease/202504/t20250416_1959313.html
National Bureau of Statistics of China. (2025, April 15) . Statistical Communiqué of the People’s Republic of China on the 2025 National Economic and Social Development. Beijing, China.
China Customs Administration. (2025, April 12). Monthly Trade Report: March 2025. Beijing, China.
Ministry of Commerce of the People’s Republic of China. (2025, March 28). Report on Foreign Trade Situation: First Quarter of 2025. Beijing, China.
People’s Bank of China. (2025, April 10). Monetary Policy Report: Q1 2025. Beijing, China.
Financial Institution Reports
Nomura Holdings Inc. (2025, April 18). China Economic Outlook: Q2 2025. Tokyo, Japan.
UBS Investment Bank. (2025, April 17). Global Economic Perspectives: China’s Growth Challenges. Zurich, Switzerland.
Goldman Sachs Group Inc. (2025, April 15). Asia Economic Analyst: China’s Response to Trade Tensions. New York, USA.
Morgan Stanley. (2025, April 14). China Economics: Q1 Review and Outlook. New York, USA.
International Organizations
International Monetary Fund. (2025, April). World Economic Outlook, April 2025: Navigating Global Divergences. Washington, DC.
World Bank. (2025, April). East Asia and Pacific Economic Update, April 2025: Resilience Amid Uncertainty. Washington, DC.
Organisation for Economic Co-operation and Development. (2025, March). OECD Economic Outlook, Interim Report March 2025: A Fragile Recovery. Paris, France.
U.S. Government Sources
Office of the United States Trade Representative. (2025, March 15). 2025 Trade Policy Agenda and 2024 Annual Report. Washington, DC.
The White House. (2025, April 2). Statement on Reciprocal Tariffs on Chinese Imports. Washington, DC.
U.S. Department of Commerce. (2025, March 30). U.S.-China Trade Analysis: Q1 2025. Washington, DC.
News and Analysis Sources
Bloomberg News. (2025, April 16). China’s Economy Shows Resilience in Q1 Amid Rising Trade Tensions. Retrieved from https://www.bloomberg.com/news/articles/2025-04-16/
Financial Times. (2025, April 17) . China’s Export Surge Precedes Expected Tariff Impact. Retrieved from https://www.ft.com/content/
Caixin Global. (2025, April 16) . In Depth: China’s Q1 Economic Data Reveals Strengths and Vulnerabilities. Retrieved from https://www.caixinglobal.com/
South China Morning Post. (2025, April 18) . China’s High-Tech Manufacturing Defies Trade Headwinds. Retrieved from https://www.scmp.com/economy/
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