China displays economic resilience amidst heightened us tariffs

China’s economy showed considerable momentum at the start of the year, even as it faced increased tariffs imposed by US President Donald Trump. Retail sales climbed by 4 per cent year-on-year during January and February, outpacing December’s 3.7 per cent growth and exceeding industry forecasts. Analysts have attributed the rise in consumer activity to Beijing’s ongoing stimulus measures, designed to counteract trade tensions and bolster domestic demand. The merged January and February data reflects an effort to mitigate distortions caused by the annual Lunar New Year holiday.

Demand for household appliances and consumer electronics surged, aided by trade-in policies offering subsidies to replace older items. Discretionary spending across sectors including home renovation, automobiles, and electronic devices also performed well. Economists expect categories benefiting from government trade-in incentives to outpace headline retail sales throughout the year.

Separate figures revealed a 5.9 per cent year-on-year increase in factory output over the same period. This surpassed expectations but fell slightly short of December’s 6.2 per cent growth rate. Rising domestic borrowing by the Chinese government is helping stimulate economic activity and offset the challenges posed by cooling export demand due to the intensifying US-China trade dispute.

Trade tensions escalated further after Washington introduced a 20 per cent tariff on Chinese imports. Beijing retaliated by imposing substantial taxes on US goods valued at $22 billion, targeting agricultural products to weaken support for Trump among rural voters. Despite these pressures, China’s leadership has remained focused on achieving its 2025 GDP growth target of 5 per cent annually.

The Chinese Communist Party unveiled a 30-point economic plan aimed at shifting growth from an investment-led to a consumption-led model. Measures have included interest rate cuts, increased government spending, and stimulus schemes to encourage household consumption. Consumer sentiment, however, remains fragile, weighed down by a struggling real estate sector and rising youth unemployment rates.

One area showing promise is the tech sector, particularly artificial intelligence. Since the release of the Deepseek R1 model, investments in Chinese AI companies have driven a rally in the nation’s stock market. The blue-chip CSI 300 index has risen by over 4 per cent in the first few months of the year, contrasting sharply with the 4 per cent decline seen in the US-based S&P 500 index during the same period.

While the global economic landscape remains uncertain, Beijing’s focus on stimulating domestic consumption could serve as a crucial buffer against external headwinds. The success of its policies will play a pivotal role in maintaining growth momentum amid challenging trade dynamics.