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China’s Growth Slows Amid Escalating Trade Strains and Real Estate Decline

China’s economy is showing fresh signs of strain as escalating trade friction with the U.S. and a prolonged property market downturn weigh heavily on momentum. According to official data released Tuesday by the National Bureau of Statistics (NBS), China’s GDP grew 5.2% year-over-year in Q2 2025, down slightly from 5.4% in Q1, underscoring rising challenges to sustaining economic resilience.

The results, though modestly above some forecasts, come amid growing uncertainty around global trade flows and deep structural imbalances in the domestic economy.

Manufacturing and Services Sectors Offer Some Resilience

Despite the slowdown, China’s industrial output remains a bright spot, expanding 6.4% year-over-year, thanks in part to rising demand for electric vehicles, 3D printing hardware, and industrial automation solutions like robotics. These sectors have become strategic priorities for Beijing, which aims to modernize its manufacturing base amid global decoupling.

The services sector—spanning transport, finance, IT, and real estate—also showed gains, though at a slower pace. NBS officials said the broader economy "withstood pressure and made steady improvement despite challenges," attributing this to policy support, particularly in infrastructure spending and subsidies for advanced manufacturing.

Retail and Housing Struggle as Domestic Confidence Falters

However, retail sales growth slowed sharply to 4.8% in June, down from 6.4% in May, signaling weakening consumer sentiment amid an uncertain job market and falling property values. Household consumption, long seen as a key pillar for sustainable growth, is now under pressure.

At the same time, China’s housing market continues its downturn, with new home prices falling at their fastest pace in eight months. Despite multiple rounds of government intervention, including relaxed mortgage rules and state-backed developer bailouts, the real estate sector remains mired in oversupply and low buyer confidence.

Trade War With U.S. Weighs Heavily on Outlook

Beijing's export-driven growth model is under renewed stress as the ongoing trade war with the United States continues to bite. In response to U.S. President Donald Trump’s 145% tariff on Chinese goods, Beijing retaliated with 125% duties on select U.S. imports.

While a temporary truce was reached in Geneva and London, the clock is ticking on further escalation. Both sides have until August 12 to negotiate a permanent settlement. The uncertainty is casting a long shadow over investment planning for both domestic exporters and international firms operating in China.

Analysts Split Over 2025 Growth Trajectory

Beijing has set a modest “around 5%” GDP growth target for 2025, but analysts say that even this may be ambitious given current headwinds. “The real question is by how much China might fall short,” said Dan Wang, China Director at Eurasia Group. “We believe the government will defend a floor of 4%, which remains the minimum politically acceptable level.”

The Eurasia Group also warned that missing the target could lead to a new wave of stimulus, likely in the form of fiscal easing, more infrastructure investment, and central bank liquidity injections through the People’s Bank of China.

What’s Next: Reform or Retrenchment?

To address long-term vulnerabilities, economists say structural reforms in property markets, fiscal policy, and pension systems are urgently needed. Without them, any short-term growth might prove unsustainable.

Meanwhile, global investors and China’s trading partners are closely watching whether the country can shift from an export-and-property-led model toward innovation-driven and consumption-led growth—a transition that has long been discussed but remains incomplete.