Digging Into the Latest Data Out of the Middle Kingdom

For many months, pundits have warned the triple threat of tariffs, real estate woes and tepid consumption are destined to squash China’s economy. Yet once again, echoing Q1, Chinese Q2 GDP showed resilient growth, alongside a slew of other data released Monday. Pundits met the report with skepticism, noting manufacturing powered it and August 12’s deal deadline with the US looms. While there are factors worth monitoring, chiefly tariffs’ effects, China’s economy has repeatedly demonstrated its resilience and ability to add to world growth.

Chinese GDP grew 5.2% y/y in Q2, beating analysts’ expectations for a 5.1% rise, but slowing from Q1’s 5.4%.^[i] That lands 2025’s first half growth at 5.3%, on track to hit the Chinese government’s target for “around 5%” growth this year. From a sector standpoint, services led the way in Q2, growing 5.7% y/y and accelerating from Q1’s 5.3%. Agriculture grew 3.8% y/y, up from Q1’s 3.5%, while manufacturing slowed to 4.8% y/y from Q1’s 5.9%.

Along with GDP, China’s National Bureau of Statistics (NBS) released June monthly data, which were mixed but mostly positive. Both exports and industrial production (IP) impressed, rising 5.8% y/y and 6.8%, respectively.^[ii] Some pundits chalked this up to companies’ front-running the August 12 tariff deadline, which could be true to some extent. But it is worth noting US-bound shipments fell a whopping -24% in Q2 while exports headed elsewhere—particularly to southeast Asia—rose sharply.

To us, this looks like corporations rerouting shipments through other countries to mitigate tariffs’ effects, known as transshipping. We saw plenty of this amid President Trump’s China tariffs in 2018 and 2019, so this could be a rerun. Now, the Trump administration is seeking to tamp this down via higher tariffs on transshipped goods, as seen in the Vietnam deal earlier this month. This raises the possibility Chinese exports falter from here, although the scope and how the administration aims to enforce transshipping restrictions are unclear.

Meanwhile, consumer spending and real estate disappointed. While retail sales rose 4.8% y/y, which looks healthy enough, they fell -0.16 m/m in June, their first monthly contraction since China’s government launched a goods trade-in program last year aimed at boosting consumer spending.^[iii] Mind you, we generally don’t dwell on month-over-month figures, given the data are young and China’s seasonal adjustment methodology isn’t yet proven. But in this case it is noteworthy, given seasonal adjustments are theoretically an opportunity to massage data, yet the headline result was negative. This could improve investors’ confidence in data in the long run, which is probably more significant than the actual drop itself. At any rate, whether we look at the slight month-over-month drop or modest year-over-year slowdown, it is clear spending on goods has some challenges, even with the government’s stimulus efforts. That said, markets are well aware of this by now.

Markets are also aware of troubles in property investment, which plunged -11.2% y/y in 2025’s front half, extending a multi-year weak patch that began with developer Evergrande’s collapse in 2021. Markets have hashed and rehashed this to death, parsing every part of it, from the alleged drag on consumption to developer bailouts and beyond. Global stocks also know the collapse followed a bubble that the government had spent years trying to tame. It isn’t even clear that falling investment in new property development is inherently problematic, given the focus on completing the backlog of bought-but-uncompleted homes. In short, this seems one of many areas where sentiment is detached from reality.

Stimulus is another. Loads of analysts claim GDP’s persistence is really about stimulus, but the data don’t really show a huge influence. Perhaps consumption, for example, would be worse without support like the goods trade-in program. Perhaps the government’s habit of flipping back to stimulating industry through such programs and infrastructure development at the expense of services cuts against their long-term aims of buoying the more-advanced services sector. And perhaps critics who claim such heavy industry programs are tantamount to pushing on a string are right. But here is the thing: In Q2, again, services grew fastest and accelerated while manufacturing slowed. That suggests growth isn’t all about stimulus—this is the hidden resiliency so many skeptical pundits fail to acknowledge.

While the landscape isn’t perfect, growth still looks likely ahead. To be clear, August 12’s tariff resumption deadline looms large. Given the volatile nature of President Trump’s dealmaking and already tense US-China trade relations, this is a source of uncertainty that probably bears watching. However, workarounds—like the aforementioned transshipping and legal methods of averting like operating final assembly in third-party nations—offer China possible workarounds, mitigating the negative effects here. Stocks are also well aware of this date, too, likely mitigating surprise power.

And yes, property market woes are still real. But China has dealt with them for so long that we doubt they sway growth at this point. Consider: the Middle Kingdom has contributed solidly to global GDP growth despite property investment’s falling off a cliff since 2021. Stimulus or not, China can grow fine alongside failing real estate. We doubt this time is different.