Overview

• Following the trade talks in May, the US and China agreed to a 90 day pause to the extreme bilateral tariffs each country imposed in April. While there remains uncertainty around the longer-term trade relationship, this agreement is sufficient to wind back some of last month’s downward revision to China’s economic outlook. We now see China growing by 4.3% in 2025 and 4.0% in 2026 (from our previous forecast of 4.1% and 3.9% respectively). That said, even following the pause, trade barriers remain substantially above the norm for the past century, and this means this revised forecast remains weaker than where we saw China’s growth potential in March.
• China’s industrial production growth remained relatively strong  in April – increasing by 6.1% yoy – however this was down from the 7.7% yoy increase in March. Industrial production growth continued to outpace real retail sales – indicative of the persistent imbalances in China’s domestic economy since the start of the pandemic.
• Real fixed asset investment increased by 6.3% yoy in April – down from 6.8% yoy in March – albeit this growth rate was still towards the top end of the range exhibited in the post-pandemic period.
• China’s trade surplus remained elevated in April – at US$96.2 billion (down from US$102.6 billion in March). This was the sixth highest surplus on record. Exports to the United States plunged – down by 21.0% yoy. In contrast, exports to emerging Asian markets rose by 22.0% yoy. The scale of these changes raises questions around trans-shipments (where goods ultimately delivered to the United States are initially exported to a third country to disguise its origin).
• In real terms, China’s retail sales rose by 5.2% yoy in April (down from 6.0% yoy in March). Looking though the volatility, real retail sales growth has trended higher from very weak rates in mid-2024, but remains below the rates seen prior to the 2018-19.
• China’s new credit issuance increased rapidly in the first four months of 2025 – up by 28.3% yoy to total RMB 16.3 trillion. Government bond issuance overwhelmingly accounted for this increase – with issuance increasing by 283% yoy in the first four months. Excluding government bonds, new credit issuance increased by just 0.2% yoy.
• In early May, the People’s Bank of China (PBoC) announced additional easing in monetary policy. The 7 day reverse repo rate (the main policy rate) was trimmed by 10 basis points, along with a 50 basis point cut to the Reserve Requirement Ratio (RRR). The former is unlikely to boost loan demand (given its modest size) – the key constraint on lending at present – while the latter will only boost supply. Cuts to the RRR in 2024 helped to fuel a rally in government bonds as banks searched for viable returns in the absence of borrowers and the yield curve has not yet returned to a normal shape.

For further details please see China’s economy at a glance (19 May 2025)