China’s industrial output showed unexpected resilience in April, growing 6.1% year-on-year, despite slowing from the 7.7% rise in March. The result, which surpassed the forecasted 5.5% growth, points to the effects of government support measures aimed at buffering the economy from external pressures, including the ongoing trade war with the U.S.
Impact of Government Support and Trade War
Economists attribute April’s economic resilience to “frontloaded” fiscal support, with stronger government spending playing a key role. The figures follow a firmer-than-expected export performance, which economists believe was boosted by rerouted shipments and increased foreign demand as global trade is reshaped by President Donald Trump’s tariffs. However, the data also highlighted the continued shock from U.S. tariffs, with export delivery values barely changing despite rapid growth in industrial output.
Trade Truce and Mixed Economic Signals
Last week, China and the U.S. reached an unexpected agreement to roll back most tariffs imposed since early April, offering temporary relief to the Chinese economy. The 90-day pause has helped cool tensions and could support bilateral trade growth and the global economic recovery. Despite this, economists remain cautious, pointing out that the short-term trade truce and Trump’s unpredictable policies continue to cast a shadow over China’s export-driven economy, which still faces significant tariffs.
Economic Pressures Persist in Key Sectors
China’s property sector remains weak, with home prices stagnating and investment continuing to shrink. Retail sales grew 5.1% in April, slightly below the expected 5.5% growth, reflecting the impact of U.S. tariffs on consumer sentiment. Commodity sectors also showed signs of weakness, with crude oil processing down 4.9% and steel output decreasing by 7%. Despite these challenges, the government’s push to stimulate spending led to a 38.8% increase in home appliance sales.
Ongoing Economic Concerns and Policy Easing
The unemployment rate in China fell slightly to 5.1%, but some factories heavily reliant on the U.S. market have had to send workers home. With deflationary pressures and weak lending data, economists stress the need for more policy support to ensure sustainable recovery. Goldman Sachs analysts warn that while China’s economy may be showing short-term growth, the payback effects from earlier stimulus could hurt long-term growth prospects.
Outlook for China’s Economy
Despite facing numerous challenges, China’s economy expanded by 5.4% in the first quarter of 2025, surpassing expectations. Authorities remain confident in reaching the country’s 5% growth target for the year. However, the ongoing trade war and resulting economic uncertainty pose significant risks to this momentum. In response, China has introduced stimulus measures, including interest rate cuts and a liquidity injection, though economists predict that the trade war will continue to weigh on growth and consumer spending in the coming quarters.
