What’s powering China’s economy in 2025—and what’s dragging it down

While exports to the US dipped under the weight of tariffs earlier this year, Chinese shipments began to rebound in June. (Courtesy: Reuters photo for representation)

China’s economy grew 1.1% in the April–June quarter over the previous three months, showing steady expansion driven by robust manufacturing and infrastructure investment, despite lingering domestic weaknesses. If that pace continues, annual growth could land around 4.1%, just slightly below the first quarter’s rate. The figures, released Tuesday by the National Bureau of Statistics, China, suggest resilience in the face of US President Donald Trump’s recent tariff hike, which temporarily reached 145% before a truce in May, the New York Times reported.

While exports to the US dipped under the weight of tariffs earlier this year, Chinese shipments began to rebound in June. Meanwhile, exports to Southeast Asia, Europe, and Africa surged, with some goods routed indirectly to the US Analysts say pre-tariff stockpiling helped buoy China’s factories in Q1. Still, strength continued into Q2, prompting Oxford Economics to revise its 2025 forecast upward to 4.7% growth from 4.3%.

Factory construction and major projects like high-speed rail lines are helping China offset an 11.2% year-on-year plunge in real estate development, long a pillar of growth. A glut in production has led to falling prices for manufactured goods, but aggressive investment continues. Ivanhoe Electric’s planned copper mine in Arizona, for instance, reflects global industrial demand partly fuelled by Chinese consumption of metals.

Despite government subsidies to spur purchases of electric cars and appliances, retail sales fell slightly in June compared to May. The housing market’s ongoing slump continues to dampen sentiment. “Domestic effective demand is insufficient,” admitted Sheng Laiyun, deputy director of the statistics bureau, highlighting the structural challenge of China’s consumption-led rebalancing strategy.

With prices of homes and consumer goods falling, the threat of deflation is growing. Real estate agents report that buyers increasingly prioritize bargains. Falling prices may seem good for consumers, but they hurt company profits and reduce the incentive to invest or hire. This downward pressure is already visible in wage stagnation and shrinking household spending power.

Although interest rates are at an 11-year low, helping firms borrow more cheaply, direct fiscal stimulus remains limited. Pension payments — some as low as $20 a month — will rise just 2% this year. While analysts recommend putting more money in consumers’ hands, Beijing continues to emphasize financial prudence.

Despite steady GDP growth, China’s recovery remains uneven. Export strength and manufacturing are masking underlying domestic fragilities. As long as consumer demand stays weak and real estate struggles, the economy will rely heavily on foreign buyers and industrial overdrive to stay on track.