China’s economy showed signs of improvement in the first two months of the year, with retail sales and industrial output exceeding expectations, providing some relief amid the ongoing impact of US trade tariffs.
However, challenges such as rising unemployment and a struggling property market continue to pose risks to sustained economic recovery.
Data released by the National Bureau of Statistics (NBS) on Monday showed:
- Retail sales grew 4.0% in January-February compared to a year earlier, up from 3.7% in December.
- Industrial output increased 5.9%, surpassing economist estimates and maintaining solid growth despite a slowdown from 6.2% in December.
- Fixed-asset investment rose 4.1%, higher than analysts’ forecasts of 3.6%.
Analysts say the retail sales data reflects stronger consumer spending, supported by government subsidies and holiday-related shopping during the Lunar New Year.
“The retail data is in a nice and comfortable range,” said Helen Qiao, chief economist for Greater China at Bank of America Global Research. “It suggests further policy stimulus may still be needed but is not urgent.”
Despite encouraging consumption data, the Chinese economy still faces significant headwinds:
- The urban unemployment rate rose to 5.4% in February, the highest level in two years.
- China’s exports have weakened, partly due to additional US tariffs on Chinese goods, with concerns that further trade restrictions could slow economic growth.
- Investment in real estate fell 9.8%, showing continued strain in China’s property sector, despite government efforts to provide financial support to developers.
US trade policies remain a major concern, with former President Donald Trump imposing a 20% tariff on all Chinese goods and threatening additional measures. Exports, which accounted for nearly a quarter of China’s GDP in 2024, are expected to face continued pressure.
To counter economic challenges, Chinese policymakers are focusing on expanding domestic demand. Over the weekend, the government announced a “special action plan” to stimulate consumption, which includes:
- Increasing residents’ income through fiscal measures.
- A childcare subsidy program to ease financial burdens on families.
- A consumer goods trade-in initiative, with 300 billion yuan ($41.5 billion) allocated for subsidies on electric vehicles, home appliances, and other goods.
“These measures are a step in the right direction,” said Alfredo Montufar-Helu, head of the China Center at The Conference Board. “However, their effectiveness will depend on how they are implemented at the local level.”
China’s official economic growth target for 2025 remains at around 5%, but analysts warn achieving this may be difficult given weaker global demand and ongoing trade tensions.
“Achieving the target will not be easy,” said Fu Lingui, spokesperson for the NBS. “More stimulus may be required to sustain growth.”
