China – Why do we think growth will slow in H2?

We think the recent rise in retail sales growth, thanks to the stimulus measures, is just temporary. The policy impact is unlikely to be long-lasting. The sharp rise in loss-making enterprises points to a rather bleak picture for business confidence and employment, which in turn affect consumer confidence. Therefore, Beijing has a lot more work to do if the policymakers want to prioritize lifting consumption as one of the key policy goals.

Robust industrial production and better-than-expected retail sales growth point to a resilient first half of 2025. In real terms, they both grew around 6% yoy in April-May. These figures suggest GDP could again grow beyond 5% yoy in Q2, beating our expectation, after a 5.4% growth in Q1. We have summarized the latest development in our latest Economic Briefing on “China – May retail sales surprise” .

That said, we continue to take a cautious view, especially for the second half of this year and next year.

Consumption stimulus program does not produce long lasting effect

First of all, retail sales have been supported by the government’s trade-in program for big-ticket consumer items such as home appliances and cars, as well as consumer electronics. However, there have been issues with the program itself. Over half of the CNY300 billion earmarked for the trade-in program by Beijing for this year has already been distributed by early June. Consumer participation has seen local governments quickly running out of funds for these subsidies.

The central government may soon distribute the remaining funds to local governments to fund the program. However, in our view, it is unclear whether consumer confidence has actually improved, given that the outlook for jobs and incomes has remained uncertain.

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