China’s Economic and Financial Outlook in 2025H2

In the first half of 2025, amid the drastic changes in the external environment, China stepped up the implementation of more proactive and effective counter-cyclical adjustment policies. As a result, domestic demand was generally stable level, exports performance exceeded expectation, industrial production grew fast, and the economy remained generally stable, with the GDP growth projected at around 5.4% in the first half of the year. 

In the second half of the year, China’s economy will still face multiple uncertainties and destabilizing factors, particularly the highly uncertain US tariff policies that will weigh on export growth. It’s expected that the GDP growth will be around 5% in 2025Q3, and around 5% in the full year, with domestic demand contributing greater to economic growth. Going forward, it will be increasingly necessary to enhance the intensity and effectiveness of macro policies. With the focus on the demand side, efforts should be made to accelerate the implementation of existing policies, while proactively planning incremental policies, to drive the recovery of domestic demand, stabilize the real estate market, and tackle various external uncertainties through growing internal certainties, thereby laying a solid foundation for the steady economic growth in the full year and for a good start of the 15th Five-Year Plan period.

I. 2025H1 Economic Review

1. Exports exhibited strong resilience and performed better than expected. In the first five months of 2025, China’s exports (denominated in the US dollar, the same below) increased by 6% year-on-year to USD1.48 trillion, 3.3percentage points higher than the same period of last year. First, China’s exports to the US dropped significantly, decreasing by 7.4% year-on-year in the first five months of 2025. Second, China’s exports to emerging economies and EU grew relatively fast, partially offsetting the impacts of the tariff policy. Third, less affected by the tariff policy, some electromechanical products functioned as a major force driving export growth. 

2. Policies to spur domestic demand have produced notable results, but the effects of real estate policies have diminished. First, the consumer goods trade-in policy has significantly boosted consumption, but divergence has emerged across segmented consumer markets. In the first five months of 2025, total retail sales of consumer goods grew by 5%year-on-year, 0.9 percentage point higher than the same period of last year. Second, the policies of large-scale equipment renewals and consumer goods trade-ins drove fast growth in manufacturing investment, leading to a higher level of contribution to overall investment growth. In the first five months of 2025, manufacturing investment grew by 8.5% year-on-year, contributing to 56.5% of the overall investment growth, 4.1 percentage points higher from 2025Q1. Third, funds raised through special-purpose bonds and others expanded in size at a faster pace, laying a sound foundation for the accelerated growth of infrastructure investment. Fourth, the real estate market weakened again, with divergence intensified across the market.

3. Industrial production generally maintained fast growth, but divergence remained evident. In the first five months of 2025, the added value of industrial enterprises above the designated size increased by 6.3% year-on-year. . First, the policies of large-scale equipment renewals and consumer goods trade-ins continued to drive the fast growth of midstream equipment manufacturing related industries. Second, under the tariff pressure, the pre-emptive export surge provided a temporary support for industrial production. Third, downstream discretionary consumer goods manufacturing and midstream real estate related manufacturing showed sluggish performance. Fourth, with strong support from new drivers of growth, midstream material manufacturing related to new quality productive forces delivered stable performance. 

4. Price levels remained low, diverging significantly from the volume of consumption. First, residential consumption related price index diverged from residential consumption trends. Residential consumption of commodities increased in volume but decreased in prices. Second, the growth of main industrial product prices diverged from the growth of industrial production. 

II. 2025H2 Economic Outlook

In the second half of 2025, China’s economy will still face multiple uncertainties and destabilizing factors. However, it’s also noteworthy that China is becoming more capable of tackling internal and external risks and challenges to its economy. Answering the following four questions will be crucial to the analysis of the trends of China’s economy in the second half of the year. 

Question 1: Can the trend of accelerated consumption growth be sustained? In the second half of the year, consumption growth will be primarily supported by the growing effects of policy stimulus and the release of service consumption potential, and is expected to be flat with the first half of the year. First, with special action plans released in several cities to boost consumption, intensifying and implementing the pro-consumption policies will be a major force driving the recovery of consumption. Second, the potential of service consumption is expected to be further unleashed. 

Question 2: Can the decline in real estate investment be narrowed? The State Council executive meeting held on June 13 stressed the need to “conduct a comprehensive survey of all supplied land and ongoing real estate projects nationwide, further optimize existing policies, make policy implementation more systematic and effective, take a combination of measures to stabilize expectation, spur demand, refine supply and resolve risks, and make greater efforts to stabilize and recover the real estate market”. However, the recovery of real estate investment still faces multiple restrictive factors. To hedge against the downward pressure on the real estate market and external shocks, future policies focus on accelerating infrastructure projects. Consequently, growth in infrastructure investment is likely to accelerate, and play a bigger role in stabilizing economic growth. Meanwhile, manufacturing investment will maintain fast growth.

Question 3: Can the better-than-expected growth of exports be sustained? In the second half of the year, emerging economies will maintain relatively fast growth, with their growing demands providing support for China’s exports. However, China’s exports will still face multiple challenges in the second half of the year, with the growth likely to moderate. First, the momentum of global economic and trade growth will moderate. Second, the US tariffs on China’s exports will remain at a relatively high level. Third, the evolution of the “reciprocal tariff” game may exert spillover effects on China’s exports. Fourth, prices and the base effect will be a drag on export growth. 

Question 4: Can the price level recover? In terms of CPI, first, the year-on-year rise of core CPI excluding food and energy will still be at a low level. Second, food and energy prices may trend downward simultaneously. In terms of PPI, traditional sectors such as real estate will still have weak demands for major industrial products like iron & steel and cement, and the price wars in automobiles and other fields will continue to drag down the prices of relevant products. 
In summary, China will still face great external challenges in the second half of the year, but the intensified pro-consumption policies and the unleash of service consumption potential will underpin the steady growth of consumption. Meanwhile, strengthening investment in infrastructure will hedge against the downward pressure on real estate investment. It’s expected that China’s GDP growth will be around 5%in 2025Q3, and around 5% in the full year, with domestic demand contributing greater to economic growth.

III. 2025H1 Financial Review and 2025H2 Financial Outlook

In the first half of 2025, despite the disturbance of the US “reciprocal tariffs” to financial operations, driven by positive factors including economic growth, intensified policies, enhanced confidence and inflows of foreign capital, China’s financial market exhibited strong resilience and vitality, as evidenced by the continued recovery of the financing demands of real economy enterprises, steady growth of money supply and aggregate financing, interest rates that trend downward, the stabilization and rebound of China’s stock market, steady growth of bond issuances, accelerated issuance of innovative products such as sci-tech innovation bonds, and eased pressure on RMB depreciation. In the second half of the year, given the release of reform dividends, notably strengthened confidence in development, and inflow of foreign capital against the backdrop of de-dollarization, the financial market will sustain the trend of steady recovery amid volatility. However, the emerging effects of “reciprocal tariffs”, weaker-than-expected recovery of domestic demand, among other risks and challenges, will still deserve attention.

1. Intensified policies will boost funding demand, and major financial data is expected to recover steadily. In the first half of 2025, driven by economic recovery and growth, major financial data steadily improved. In the first five months of 2025, aggregate financing to the real economy increased by RMB18.63 trillion, RMB3.83 trillion more than the same period last year. Three characteristics were exhibited: First, new credit issuance increased year-on-year. Second, government bond financing increased by a much larger margin. Third, equity financing increased year-on-year. Fourth, credit to green development and related fields maintained medium-to-high growth, while the growth of loans to real estate reversed the falling trend and rebounded. 
In the second half of 2025, as policies continue to intensify, major financial data are expected to sustain steady growth. First, aggregate financing to the real economy will expand steadily. Second, outstanding credit in key areas and weak links of the economy will maintain medium-to-high growth. Third, government bond issuance will continue to gather pace. 

2. With another cut in policy rates, liquidity is expected to remain ample in 2025Q3. First, policy rates were lowered, significantly easing the tight balance of liquidity. Second, the interest rates of special structural monetary policy instruments were cut for the first time. Third, the housing loan rates in some cities did not decrease following the declining Loan Prime Rate (LPR). 

In the second half of the year, the interest rates may steadily decline, and liquidity will be kept reasonably ample. It is required to make full use of the moderately accommodative monetary policy. Meanwhile, phenomena such as bond market speculation and exchange rate depreciation have been somewhat curbed, creating favorable conditions for the orderly reduction of interest rates.

3. Trade frictions will disturb A-shares and several reforms will help accumulate the momentum of growth. Trading activities have been active and the investment and financing functions have been enhanced. Meanwhile, technology and growth sectors have gained popularity. Bearish factors included geopolitical risks. Bullish factors included: First, the profits of listed companies are growing. Second, global assets are revaluing China.

In the second half of the year, the A-share market will maintain an upward trend amid volatility. First, phased progress made in tariff negotiations will ease the pressure on listed companies in terms of operating income. Second, the optimization of the mutual fund assessment mechanism will reduce market volatility. Third, the M&A and restructuring market will be more active, with relevant sectors expected to deliver impressive performance. 

4. Bond yields will fluctuate downward, while issuance volume will steadily grow. First, bond yields have been continuously fluctuating. Second, bond issuance increased significantly. Third, the issuances of innovative products such as sci-tech innovation bonds and asset-backed commercial notes gathered pace. 

It is expected that in the second half of the year, bond yields will fluctuate downward, while the issuance volume will grow, with innovative products such as sci-tech innovation bonds expected to increase at a faster pace. First, bond yields will move downward amid fluctuations. Second, bond issuances will keep growing. Third, innovative products such as sci-tech innovation bonds will maintain a sound momentum of growth. 

5. With the depreciation pressure substantially eased, the RMB exchange rate will remain basically stable at a reasonable and balanced level. . First, the onshore exchange rate appreciated, with the deviation from the central parity rate narrowing significantly. Second, the offshore exchange rate appreciated significantly. Third, the pressure on banks’ foreign exchange settlement and sales was notably relieved. 

In the second half of the year, it is expected that the RMB exchange rate will remain basically stable at a reasonable and balanced level. First, global tariff risks have temporarily eased. Second, China has developed different effective policy tools to stabilize the RMB exchange rate. Third, the recovery of the capital market has accelerated the inflow of foreign capital.

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