Chinas economy beats expectations amidst challenges in second quarter growth

China’s economy demonstrated surprising resilience in the second quarter of 2025, defying expectations despite facing significant headwinds. Gross domestic product (GDP) increased by 5.2% year-on-year during the April to June period. While this marked a slowdown from the 5.4% growth recorded in the first quarter, it surpassed analysts’ forecasts of 5.1% growth.

The stronger-than-expected performance comes as businesses “front-loaded” shipments to mitigate the impact of potential tariff increases under the ongoing US-China trade war. The temporary truce agreed by Washington and Beijing has allowed Chinese manufacturers to push exports forward, although analysts predict the effects of this strategy may fade in the second half of the year.

Despite these headline figures, challenges continue to cloud the broader economic outlook. Domestic demand remains weak, and consumer confidence is struggling to recover. Falling house prices and diminishing government subsidies are key factors casting doubt on the sustainability of any recovery in consumption. Last month’s temporary export agreement between the US and China extended the current trade truce until August, providing a brief reprieve, yet uncertainty around the renewal of such deals persists.

Economists warn of potential challenges ahead as the combined effects of entrenched deflation, shrinking export momentum, and tight household budgets continue to weigh on growth. Efforts by policymakers to mitigate these pressures include increased infrastructure spending, additional consumer subsidies, and monetary easing. Measures such as interest rate cuts by the central bank were introduced to cushion the economy from the ongoing impacts of US tariffs.

With GDP marking a 1.1% increase on a quarterly basis in the second quarter, slightly above predictions of 0.9%, investors now turn their attention to Beijing’s next politburo meeting in July. Economic policy for the remainder of the year is expected to be shaped during these discussions, with market watchers anticipating further moves from the government to ensure the annual growth target of around 5% is met.

Analysts have suggested that additional deficit spending could be on the horizon if economic conditions worsen. Nevertheless, questions remain about the Chinese economy’s ability to maintain growth rates as external pressures mount, coupled with limited prospects for a quick domestic recovery.