China: The possibility of a sharp economic slowdown has decreased
2025-05-22
■ Production, consumption, and investment growth slowed in April, but overall growth persisted, avoiding significant deterioration in economic activity.
■ The US and China reached an agreement on tariff cuts on May 12, diminishing the risk of a sharp slowdown in China's economy.
China released a large number of economic indicators for April on the 19th, revealing the economic situation after the US and China significantly increased tariffs. From the perspective of major economic indicators, the growth rates of industrial added value (up 6.1% year-on-year), total retail sales of consumer goods (up 5.1% year-on-year), fixed asset investment (excluding rural areas, up 4.0% year-on-year since the beginning of the year), and the service industry production index (up 6.0% year-on-year) all slowed, reflecting the preemptive effect in March before the announcement of the US "mutual tariffs" and the decline in strong growth resulting from the government's demand stimulus policies. From a month-on-month perspective, the growth rates of industrial added value (up 0.22% month-on-month), total retail sales of consumer goods (up 0.24% month-on-month), and fixed asset investment (up 0.10% month-on-month) reached their lowest values since the beginning of the year; however, despite the escalating Sino-US trade frictions in April, production, consumption, and investment continued to grow.
From a detailed data perspective, similar to March, high-tech manufacturing and equipment manufacturing—key areas of support for the Chinese government—maintained a year-on-year output growth of about 10%. Supported by the old-for-new and consumption promotion policies, sales of home appliances, audio and video equipment, communication equipment, and sports and entertainment products increased by more than 20% year-on-year. According to trade data released on the 9th, exports increased by 8.1% year-on-year; however, exports to the United States decreased by 21.0% year-on-year, while exports to ASEAN rose by 20.8% year-on-year. These changes indicate that the trend of exporting to the United States via third countries has strengthened. While the negative impact of the US tariff policy is evident in certain industries such as textiles and pharmaceuticals, as of April, overall economic activities have avoided serious deterioration due to detour exports and the Chinese government's efforts to promote industrial revitalization and expand domestic demand.
After the Sino-US trade negotiations, both sides reached an agreement on a 90-day tariff reduction and other measures on May 12, reverting the tariff levels to what they were before April 2. Given that the Chinese government plans to increase fiscal spending to achieve the growth target of "around 5%", the risk of a sharp economic slowdown can be considered reduced. However, a high tariff of 30% is still imposed on exports from China, and exports of low-priced goods—which are crucial for competitiveness—are expected to remain sluggish. The traditional export model faces a transformation, and due to the labor-intensive nature of related industries, it is anticipated to trigger a series of socio-economic issues in China through industrial restructuring, unemployment, and reduced income.
Simultaneously, this presents an opportunity to promote structural reforms, such as supply chain reconstruction and localization of core technologies that the Chinese government has long advocated. Even if China and the United States establish some form of trade agreement, in the medium term, the trend of global economic division will persist and is deemed irreversible.
■ The US and China reached an agreement on tariff cuts on May 12, diminishing the risk of a sharp slowdown in China's economy.
China released a large number of economic indicators for April on the 19th, revealing the economic situation after the US and China significantly increased tariffs. From the perspective of major economic indicators, the growth rates of industrial added value (up 6.1% year-on-year), total retail sales of consumer goods (up 5.1% year-on-year), fixed asset investment (excluding rural areas, up 4.0% year-on-year since the beginning of the year), and the service industry production index (up 6.0% year-on-year) all slowed, reflecting the preemptive effect in March before the announcement of the US "mutual tariffs" and the decline in strong growth resulting from the government's demand stimulus policies. From a month-on-month perspective, the growth rates of industrial added value (up 0.22% month-on-month), total retail sales of consumer goods (up 0.24% month-on-month), and fixed asset investment (up 0.10% month-on-month) reached their lowest values since the beginning of the year; however, despite the escalating Sino-US trade frictions in April, production, consumption, and investment continued to grow.
From a detailed data perspective, similar to March, high-tech manufacturing and equipment manufacturing—key areas of support for the Chinese government—maintained a year-on-year output growth of about 10%. Supported by the old-for-new and consumption promotion policies, sales of home appliances, audio and video equipment, communication equipment, and sports and entertainment products increased by more than 20% year-on-year. According to trade data released on the 9th, exports increased by 8.1% year-on-year; however, exports to the United States decreased by 21.0% year-on-year, while exports to ASEAN rose by 20.8% year-on-year. These changes indicate that the trend of exporting to the United States via third countries has strengthened. While the negative impact of the US tariff policy is evident in certain industries such as textiles and pharmaceuticals, as of April, overall economic activities have avoided serious deterioration due to detour exports and the Chinese government's efforts to promote industrial revitalization and expand domestic demand.
After the Sino-US trade negotiations, both sides reached an agreement on a 90-day tariff reduction and other measures on May 12, reverting the tariff levels to what they were before April 2. Given that the Chinese government plans to increase fiscal spending to achieve the growth target of "around 5%", the risk of a sharp economic slowdown can be considered reduced. However, a high tariff of 30% is still imposed on exports from China, and exports of low-priced goods—which are crucial for competitiveness—are expected to remain sluggish. The traditional export model faces a transformation, and due to the labor-intensive nature of related industries, it is anticipated to trigger a series of socio-economic issues in China through industrial restructuring, unemployment, and reduced income.
Simultaneously, this presents an opportunity to promote structural reforms, such as supply chain reconstruction and localization of core technologies that the Chinese government has long advocated. Even if China and the United States establish some form of trade agreement, in the medium term, the trend of global economic division will persist and is deemed irreversible.