China’s first-quarter economic growth outstripped expectations, underpinned by solid consumption and industrial output, but analysts fear momentum could shift sharply lower as U.S. tariffs pose the biggest risk to the Asian powerhouse in decades.
President Donald Trump has ratcheted up tariffs on Chinese goods to eye-watering levels, prompting Beijing to slap retaliatory duties on U.S. imports that have raised the stakes for the world’s two biggest economies and rattled financial markets.
Data on Wednesday showed China’s gross domestic product (GDP) grew 5.4% in the January-March quarter from a year earlier, unchanged from the fourth quarter, but surpassed analysts’ expectations in a Reuters poll for a rise of 5.1%.
Growth momentum is expected to cool sharply in the next few quarters, however, as Washington’s tariff shock hits the crucial export engine, heaping pressure on Chinese leaders to roll out more support measures to keep the world’s second-largest economy on an even keel.
“China’s economy faces two material drags simultaneously: the ongoing property fallout internally and the unprecedented U.S.-China trade war externally,” Nomura economists said in a note.
While government stimulus boosted consumption and supported investment, Xu Tianchen, senior economist at the Economist Intelligence Unit, said that “a forceful and timely policy response” is needed given the additional pressure stemming from U.S. tariffs.
Exports have remained a lone bright spot in China’s economy, with a trillion-dollar trade surplus last year helping to underpin growth even as a prolonged property sector slump and sluggish domestic demand continue to undercut a solid recovery.
That complicates the policy challenge for Beijing as Trump’s relentless focus on China’s vast trade engine threatens to choke off a key growth driver.
China’s Premier Li Qiang said this week the country’s exporters will have to cope with “profound” external changes, and vowed to support more domestic consumption.
Investors largely looked past the better-than-expected data, with China’s benchmark Shanghai Composite Index (.SSEC) ending a wobbly session slightly up while the yuan fell, as confidence remained frail amid a darkening growth outlook.
“UNPRECEDENTED” CHALLENGE
Indeed, quarter-on-quarter momentum highlighted a softer underbelly, with the economy expanding 1.2% in the first quarter, slowing from 1.6% in October-December.
For 2025, the economy is expected to grow at a subdued 4.5% pace year-on-year, the Reuters poll showed, slowing from last year’s 5.0% pace and falling short of the official target of around 5.0%. Global investment banks have sharply slashed their China GDP forecasts for this year.
Citing the punitive U.S. duties, ANZ on Wednesday cut its China 2025 GDP forecast to 4.2% from 4.8%, while Nomura reduced theirs to 4.0% from 4.5%.
was even more pessimistic, having this week downgraded its 2025 growth forecast for the Asian giant to 3.4% from 4%, on the assumption that Sino-U.S. tariff hikes will remain in place and that Beijing will roll out additional stimulus.
“We think the tariff shock poses unprecedented challenges to China’s exports and will set forth major adjustment in the domestic economy as well,” UBS analysts said in a note.
While several other countries have been swept up in U.S. tariffs, Trump has targeted China for the biggest levies to the tune of 145%. Dismissing U.S. trade actions as “a joke”, Beijing has hit back with 125% duties on U.S. goods.
