China and its resilience to the Trade War so far
China's economy demonstrated resilience in Q2 2025 despite ongoing trade tensions with the United States, posting 5.2% year-over-year growth that exceeded analyst expectations of 5.1%.
The growth rate positions Beijing on track to achieve its full-year target of approximately 5%, though it represents a deceleration from Q1's 5.4% expansion. The economy has relied heavily on robust exports and manufacturing to offset persistent domestic challenges, including a prolonged property crisis and weak consumer demand. Industrial output surged 6.8% year-over-year in June, significantly exceeding forecasts of 5.7%, while retail sales grew 4.8% but missed expectations of 5.4%. The real estate sector continued its downward trajectory, with new home prices declining 3.7% and second-hand property prices falling 6% year-over-year.
Economists warn that overproduction combined with weak domestic demand is driving deflationary pressures, suggesting significant structural challenges ahead despite the headline growth figures.
Forecast Scenarios (GCHQ)
Likely (55-75%): Gradual Growth Deceleration
China's economy will likely experience a gradual slowdown in the second half of 2025, with growth falling to around 4.5-4.8% by Q4 as export momentum wanes and domestic demand remains weak. Shuang Ding from Standard Chartered noted that although real GDP growth was better than expected in the first half, the second half could be challenging, with higher tariffs taking a toll on China's exports. The government will implement modest stimulus measures focused on infrastructure and consumption subsidies, but these will prove insufficient to offset structural headwinds. Property market stabilization will remain elusive, with prices continuing to decline at a slower pace.
Realistic Possibility (45-55%): Policy Intervention Success
Beijing will deploy significant fiscal and monetary stimulus in Q3-Q4 2025, successfully stabilizing the property market and boosting domestic consumption. Strong policy support will bolster real estate market stabilization, with newly built commercial housing prices dropping by about 1% year-over-year and second-hand homes declining by roughly 2%. Trade negotiations with the US will result in a partial tariff rollback, providing breathing room for exporters. Growth will stabilize around 5.0-5.2% for the full year, meeting official targets. However, this scenario requires coordinated policy implementation and favorable trade developments.
Unlikely (30-45%): Economic Hard Landing
Export growth will collapse in Q3 as US tariffs bite harder and global demand weakens, while the property crisis deepens with major developer defaults spreading financial contagion. Zichun Huang from Capital Economics warned that with tariffs set to remain high, fiscal ammunition being depleted, and structural headwinds persisting, growth is likely to slow further. Consumer confidence will crater as unemployment rises and deflationary pressures intensify. GDP growth will fall below 4% by year-end, forcing emergency policy interventions including direct property market purchases and massive infrastructure spending.
