China's economy grows 5.2% as strong exports mask weak consumer demand

China’s economic growth exceeded expectations in the second quarter, but strong exports to markets outside the US masked deepening pressure caused by weak consumer demand at home. 

Gross domestic product expanded 5.2 per cent in April-June from a year earlier, after a gain of 5.4 per cent in the first quarter, according to data released Tuesday by the National Bureau of Statistics. That compares with a 5.1 per cent median forecast from economists surveyed by Bloomberg.

 

Benchmark Chinese stock indexes in Hong Kong and on the mainland pared their early gains after the data. The yuan was steady while the yield on China’s 10-year government bond was little changed. 

 

 

Industrial output rose 6.8 per cent in June from a year earlier, faster than the 5.6 per cent expansion forecast by economists. Retail sales increased 4.8 per cent last month, worse than economists’ projection. 

 

“It’s a picture of strong supply but weak domestic demand, and export resilience is not going to last,” said Michelle Lam, Greater China economist at Societe Generale SA. ”Not a good set of data despite the GDP beat.” 

 

Manufacturing output surged 7.4 per cent in June from a year ago, the fastest growth in three months, driving the overall improvement in industrial production.

 

Economists had expected retail sales growth to pull back in June after a strong gain in May, but the slump was far deeper than anticipated. 

 

In June, sales of beverages, cigarettes and alcohol as well as cosmetics all declined from a year ago, while catering services grew far slower. That dragged on overall consumption even as purchases of home appliances, communications equipment and furniture continued to soar thanks to government subsidies. 

 

Consumption contributed just over 52 per cent of economic growth in the second quarter, according to the NBS, accounting for a bigger share relative to the start of 2025 but down from more than 60 per cent a year ago.

 

The GDP deflator — a broad measure of prices across the economy — declined for the ninth consecutive quarter, extending the longest streak since the quarterly data began in 1993.  

 

Highlights of other key economic indicators:

Fixed-asset investment rose 2.8 per cent over January-June, while property investment shrank 11.2 per cent during the period

The urban jobless rate was 5 per cent in June, unchanged from the previous month

“The economy maintained steady growth with good momentum, showcasing strong resilience and vitality,” the NBS said in a statement. It also warned that “there are many unstable and uncertain factors” abroad while domestic demand “is insufficient.”

 

The world’s second-largest economy has powered ahead despite a 24 per cent slump in shipments to the US in the second quarter. Overall exports still rose, while fiscal stimulus propped up domestic demand and construction.  

 

That resilience provides Beijing with breathing room to prepare a further policy response in case trade tensions with Washington flare up again when the current tariff truce ends in mid-August.

 

Analysts polled by Bloomberg forecast GDP growth will slip to 4.6 per cent this year, significantly below the official target of around 5 per cent.

What Bloomberg Economics Says...

“The slowdown in GDP growth in the second quarter was relatively mild but the details raise concern about the outlook. Policymakers can’t let their guard down. Downside risks are high.” 

 

— Chang Shu and Eric Zhu

 

The People’s Bank of China has repeatedly signaled it’s in no hurry to deploy broad-based easing, instead favoring targeted support through structural lending tools to direct credit to priority areas and avoid idle liquidity in the financial system. 

 

Government subsidies, financed by proceeds from ultra-long special sovereign bond sales, have been key to boosting household purchases of smartphones and home appliances this year, as well as corporate investment in new equipment.

 

Central and local authorities still have more than 7 trillion yuan ($976 billion) of bonds that will be issued in the second half of the year to help support economic growth, according to an earlier state media report. 

 

Looking ahead, the Chinese economy still contends with challenges including the risk of slower exports amid uncertainties over US President Donald Trump’s tariffs.  

 

Domestic demand remains fragile, weighed down by deflationary pressures stemming from excess manufacturing capacity and weak confidence as the property sector continues to contract. 

 

“Deflation remains the key threat,” said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd. “Poor retail sales and weak real estate data suggest any one-off efforts like subsidies are not a recipe for a sustainable consumption recovery.” 

Expectations for further support to the ailing real estate industry are rising, with speculation that a high-level government meeting is being held to address the issue. Investors also reacted positively to signals from policymakers aimed at curbing “involution,” referring to cutthroat competition among firms.

 

Some economists expect quasi-fiscal tools to be revived to inject stimulus, while others have called for more aid to consumers should US tariffs be raised further. 

 

“It is hard to sustain the momentum,” said Woei Chen Ho, an economist at United Overseas Bank Ltd. “The need for stronger policy support will re-emerge in the later part of the year when the high base and payback from strong frontloading in the first half could contribute to a sharp reversal in the growth momentum.”