China’s Economy Beats Expectations in Q1 Despite Rising Trade Tensions

Highlights:

• China’s Q1 GDP grew 5.4%, beating expectations of 5.2%, driven by strong retail and industrial output.
• Retail sales rose 5.2% in March, marking their fastest growth since December 2023.
• US-China trade tensions escalated in April, with the US hiking tariffs on Chinese goods by 50%.

Robust consumer and industrial performance drives stronger-than-forecast growth

China's economy delivered a stronger-than-expected performance in the first quarter of 2025, even as it braces for escalating trade tensions with the United States. According to the National Bureau of Statistics of China, gross domestic product (GDP) grew by 5.4% in the March quarter, surpassing economists' expectations of 5.2%.

Retail and Industrial Sectors Outperform

March saw retail sales climb 5.2%, marking the fastest pace since December 2023. Industrial production also exceeded forecasts, reflecting a resilient domestic economy despite ongoing global headwinds. The growth signals that policy measures aimed at boosting demand and stabilizing growth may be gaining traction.

US-China Tariff War Reignites

Although the data paints a positive picture for the first quarter, concerns loom large. The US-China trade dispute escalated further in April, after the data period, with the United States imposing a 50% tariff hike on a range of Chinese imports. Earlier in March, tariffs had already climbed to 20%. In response, China is preparing retaliatory measures, raising fears of renewed economic strain in future quarters.

Economists Remain Upbeat Despite Risks

Capital Economics China Economist Zichun Huang remains cautiously optimistic. “Policy support should continue to shore up domestic demand over the coming months, and further monetary easing is likely to happen soon, perhaps as early as next Monday,” she noted. Huang projected that China could still maintain annual growth above 4% despite heightened tariffs.

Market Sentiment

At the time of writing, market observers remain focused on Beijing’s next steps, especially in terms of stimulus and potential countermeasures to US tariffs, as the global economy continues to navigate turbulent geopolitical waters.

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