Editor's note: China's Q2/H1 2025 GDP figures are scheduled for release this week. Looking back, the external environment has become increasingly uncertain, but the domestic market has been boosted by various policies, and new economic and consumption models have garnered attention. What is the expected report card for the economy in the first half? What trends will emerge in the second half?
【Anchor】Hello everyone, welcome to DDN Business Insider. I am Yunfei Zhang. China's Q2/H1 2025 GDP figures are scheduled for release this week. Looking back, the external environment has become increasingly uncertain, but the domestic market has been boosted by various policies, and new economic and consumption models have garnered attention. What is the expected report card for the economy in the first half? What trends will emerge in the second half? Today, we have invited Dong Shaopeng, senior researcher, Chongyang Institute for Financial Studies, Renmin University of China, and Chinese Equities Policy Specialist, along with Ma Hong, senior researcher at Guangkai's Chief Industrial Research Institute, to provide insights and analysis. Welcome both!
Currently, the most concerning topic is, of course, the performance of GDP in the first half of the year. First, I'd like to ask Mr. Ma, what is your prediction on this?
【Ma】Regarding the GDP growth rate for the first half of the year, we expect the actual GDP growth to be around 5.2% year-on-year, which is a slight increase of 0.2 percentage points compared to the end of 2024. There are several reasons for this expectation. Firstly, the pace of consumption recovery has accelerated. We anticipate that the total retail sales will grow by approximately 5% year-on-year in the first half, which is about 1.5 percentage points higher than the 3.5% at the end of last year. The main driving forces are the consumption expansion through replacing old goods and the service sector. Secondly, export performance is expected to exceed expectations. Due to uncertainties in external trade policies, there has been a noticeable rush to export throughout the first half of the year. The trade surplus for goods has increased by about 40% compared to the same period last year, which is significant. Lastly, investment in non-real estate sectors has shown a steady expansion. We estimate that fixed asset investment will grow by about 3.5% year-on-year in the first half, an increase of 0.3 percentage points compared to the end of last year. Policies promoting equipment manufacturing, high-tech manufacturing, and infrastructure investment have continued to strengthen, partially offsetting the negative impacts of declining real estate investment on overall investment.
【Anchor】OK. Mr. Dong, what observations do you have regarding the GDP performance in the first half?
【Dong】I am generally optimistic about the economic growth situation in the first half of 2025. By May, the industrial value added of industrial enterprises above designated size had increased by 5.8% year-on-year, the service production index had grown by 6.2% year-on-year, and the retail sales of consumer goods had risen by 6.4% year-on-year. These achievements are primarily due to the gradual effects of policies aimed at safeguarding growth, employment, and stabilizing market expectations. The central government's financial and monetary support for the real economy has been substantial. Whether through debt risk mitigation, large-scale consumer goods/equipment replacement programs, or financial investments, these efforts have played a significant role in restoring consumption, promoting production, and stabilizing investment.
【Anchor】Yes. Earlier, some analysts pointed out that the year-on-year GDP growth rate in the second quarter is expected to decline compared to the first quarter. Mr. Dong, what are your thoughts on this?
【Dong】The slight slowdown in growth in the second quarter compared to the first is generally a normal quarterly adjustment. What is more critical now is to stabilize consumption while leveraging the driving force of investment. At the same time, we need to ensure employment. Recently, the State Council has introduced a series of measures to further stabilize employment. For the middle-to-high-income groups, we need to create scenarios and stabilize expectations to encourage consumption and improve consumption quality. For the relatively low-income group, we must ensure that their income gradually increases and create as many job positions as possible. This includes measures like tax reductions for enterprises to generate more job opportunities.
【Anchor】Alright, Mr. Ma, how do you view this perspective?
【Ma】The Two Sessions and the Politburo meeting clearly state that policies should be implemented as early as possible. Therefore, the effects of the policies in the first quarter were quite evident, with a year-on-year growth of 5.4%. However, in the second quarter, as external pressures gradually increase, the issue of insufficient domestic demand has become more apparent. Thus, the GDP growth rate may see a decline. There are several dimensions to consider here. First, in real estate, during the second quarter, the sales area of commercial housing in 30 major cities saw a year-on-year decline in April to June, and the downward trend may expand. Second, profits of industrial enterprises above a designated size have turned to a year-on-year decline, with an increasing drop in PPI, indicating that the traditional industrial sector still faces significant inventory pressures in the second quarter. Third, the growth rate of private investment remains around zero, with accounts receivable collection periods at historically high levels, highlighting issues with cash flow and a pronounced lack of investment confidence.
【Anchor】Yes. Currently, global economic growth is slowing, with the World Bank predicting a mere 2.3% growth for the global economy this year. Under the pressure of slowing global economic growth, Mr. Dong, what key areas do you think China should focus on in the second half of the year to maintain good economic growth performance?
【Dong】In the context of the trade war, China can only actively strengthen its response by broadening its foreign trade channels through more small multilateral mechanisms, enriching our export partnerships and areas of cooperation. If we overly rely on the traditional WTO system for trade, it has already been significantly disrupted due to Trump's trade war. Therefore, small multilateral mechanisms should be a key tool and platform that emerging countries like China should strengthen.
【Anchor】Alright, Mr. Ma, what are your thoughts on this?
【Ma】The macroeconomic policy in the second half of the year will continue to adopt a relatively proactive stance. Fiscal policy will implement more aggressive measures, following the plans set out at the beginning of the year during the Two Sessions, including the issuance of special government bonds and local government special bonds, and allocating relevant fiscal funds as needed. Policies will accelerate implementation. For example, the 138 billion RMB (or CNY) allocation for the replacement programs will have two batches of funding disbursed in July and October to stimulate domestic demand. Monetary policy will maintain a moderately accommodative tone, possibly adopting measures like reserve requirement ratio cuts, interest rate reductions, and some structural policies to meet market liquidity demands, while coordinating with other macro policies to handle government debt and enterprise financing. Additionally, for the capital market, we expect the central bank to continue leveraging the role of the counter-cyclical capital buffer, utilizing policy tools effectively, and flexibly using exchange rate management tools to keep the overall stability of the RMB exchange rate.
【Anchor】Furthermore, the State Council Information Office held a series of press conferences last week on "Achieving High-Quality Completion of the 14th Five-Year Plan." One data point mentioned was that from 2021 to 2024, domestic demand is expected to contribute an average of 86.4% to China's economic growth. It can be said that domestic demand plays a crucial role in China's economic development. Mr. Ma, how do you view the implications of this data?
【Ma】I believe it is important to clarify the definition of domestic demand. The official definition refers to the total final consumption expenditure and capital formation as indicators of domestic demand under the GDP expenditure method. However, since the reform and opening up, China has been a typical manufacturing and processing export country. Therefore, many items in capital formation are closely related to manufacturing investment, a significant portion of which is linked to import and export trade. Thus, we cannot simply interpret the 86.4% contribution rate of domestic demand as indicating that the Chinese economy is driven by endogenous momentum.
【Anchor】Yes. However, we also notice that the forms and content of domestic consumption are quietly changing. For example, consumption modes like trendy toys and blind boxes are injecting vitality into the current market. How do you view the implications of these new consumption trends for traditional industries and enterprises? Are there specific industries you are particularly focused on that you believe can undergo iterative upgrades?
【Ma】With the changes and iterations in the population structure, each generation will have new consumption demands and different consumption concepts compared to the previous generation. As technology evolves, businesses will design new consumer products based on consumption tendencies, including both goods and services. Currently, young people tend to favor diversified consumption concepts, and the entire consumption hierarchy and demand stratification are more refined than in any previous era, on a significant scale. To meet the consumption needs of residents in the new era, mature and outstanding enterprises will combine with the characteristics of the times to provide products and services that align with current trends, such as trendy toys. Rather than simply undergoing transformation, it is more about keeping pace with the times. Additionally, enterprises should focus on more comprehensive research and development, and timely launch new products. For example, the restaurant industry should seize the opportunity presented by the 5G era and the increased demand from a large number of overseas tourists, integrating into the contemporary pace while expanding their business.
【Anchor】Alright. Mr. Dong, how do you view the role of domestic demand in China's economic development, and what is the relationship between domestic and external demand?
【Dong】As the second-largest economy in the world, China is still undergoing structural upgrades internally. Relying primarily on domestic demand to drive economic growth is an inevitable choice for such a large economy. The products produced internally should reflect quality, standards, and applicability that unify the internal and external markets. This means that a product can be sold both domestically and internationally. This is a necessary trend for the high-quality development of production, investment, and consumption. Therefore, we are equally attentive to external markets and need to coordinate our production, investment, and consumption with the investment, production, and consumption of external markets. There are opportunities, investment chances, consumption possibilities, and sales prospects externally, and Chinese enterprises must also seize and compete for these. Chinese companies operate within an open global economy, meeting the needs of domestic residents while also providing production and services to residents in other countries.
【Anchor】Yes, domestic and external demand are interrelated and cannot be viewed in isolation. However, in the context of international trade frictions, such as the tariff war and changes in global industrial chains, will external demand face significant pressure in the second half of the year?Mr. Ma, what measures should the government and business sectors take in response?
【Ma】In the second half of the year and for the foreseeable future, the impact of declining external demand may gradually become apparent. Preliminary estimates suggest that, for example, for every 10 - percentage - point increase in tariffs imposed by the U.S. on China, China's exports could decrease by nearly 1.5 to 2 percentage points. Based on this, we anticipate that China's export growth rate may slightly decline by around 2% for the year, which is a decrease compared to the positive export growth of 5% to 6% in the first half.
From the government's perspective, there are still some measures that can be taken, such as reducing the tax burden on relevant enterprises, simplifying processes, and better leveraging the role of policy banks' credit, such as the China Development Bank or Export-Import Bank. These institutions could moderately increase relevant lending quotas to protect the liquidity of foreign trade enterprises and mitigate related negative impacts.
At the enterprise level, I believe it's essential to prepare early, especially in terms of finance. Companies should proactively prepare for financing and foreign exchange work, reduce costs and increase efficiency, and minimize unnecessary capital expenditures to address external risks.
【Anchor】OK, thank you. That's all for this episode. Remember to follow us on YouTube or download our APP. I'm Yunfei Zhang, thanks for watching, and see you next time.
Anchor: Laura Cheung | Edited: Kelly Yang, Laura Cheung, Rachel Liu | Translate: Kato Ip | Proofread: Chris Liu
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