China's Q1 2025 economy recorded a real GDP growth rate of 5.4%, exceeding the National People's Congress target of around 5%, but has not achieved autonomous economic recovery. The growth structure has become export-dependent due to sluggish consumption and investment, with consumer contribution remaining at a low level below 3 percentage points.
Policy Effects and Limitations: The "Two New" (liangxin) policy allocated 300 billion yuan in ultra-long-term special government bonds for large-scale equipment renewal and consumer goods replacement programs. New energy vehicle subsidies were expanded to a maximum of 20,000 yuan, and home appliances received subsidies of 15% of sales prices. While consumption increased for targeted products, the overall consumption stimulus effect was limited, with retail sales growth averaging approximately 5% year-on-year in January-April 2025, significantly below the pre-pandemic average of 9.7%.
Structural Challenges: Real estate development investment declined significantly by 10.3% year-on-year, with housing prices in 70 cities continuing to fall. In employment, the urban surveyed unemployment rate of 5.1% remained below target, but rising youth unemployment remains a concern. Consumer confidence has consistently stayed below 100 since the Shanghai lockdown in spring 2022, with the employment index remaining at a low level of 72.4.
Prices and Trade Environment: Consumer prices decreased by 0.7% year-on-year in February 2025, continuing in near-zero negative territory, while producer prices have been falling continuously for over two years since October 2022. Regarding US-China trade tensions, mutual tariffs exceeding 100% were imposed in April, but a 90-day provisional reduction agreement was reached in May. While exports to the US dropped dramatically by 34.5% in April, overall exports maintained an upward trend through diversification to ASEAN and other markets.
Policy Response: The government expanded the fiscal deficit-to-GDP ratio from 3% to 4% and increased local special bond issuance quotas from 3.9 trillion to 4.4 trillion yuan. In monetary policy, China adopted a "moderately accommodative" stance for the first time since 2008-2010, implementing a 0.1 percentage point cut in policy rates and a 0.5 percentage point reduction in the reserve requirement ratio. Monetary policy framework reforms advanced the consolidation to 7-day reverse repo rates, with MLF (Medium-term Lending Facility) rates withdrawing from their policy rate function.
While China's economy shows partial improvement due to various policy effects, structural challenges including weak domestic demand, real estate market downturn, deflationary pressure, and external environment uncertainties suggest that autonomous economic recovery will require time.