China’s Economy in Early 2025: Retail and Industrial Growth Defy Expectations

Data from China’s statistics bureau indicate that the economy improved in the first two months of 2025, with retail sales and industrial output surpassing expectations. However, the property sector remains a drag on growth, with real estate investment falling nearly 10 percent. Despite slowing price declines, the market has yet to stabilize. Meanwhile, the government has introduced new measures to boost consumption, including financial incentives for trade-ins and expanded social benefits. We examine the latest economic indicators and what they mean for China’s recovery in 2025.

China’s economy began the year on a stable note, with several key indicators reflecting a positive trajectory. The National Bureau of Statistics (NBS) released data on March 17, highlighting a smooth start to the year, with production and demand gradually picking up.

Speaking at a press briefing, the NBS spokesperson Liu Aihua emphasized that “the economy has started smoothly, and the trend is moving in a positive direction.” The data for the first two months of 2025 reveals a mixed but encouraging performance across various sectors, including industrial output, services, and foreign trade. Below, we look at the latest economic indicators to understand the performance and outlook of China’s economy in early 2025.

Industrial output growth slows amid external pressures

China’s industrial output expanded by 5.9 percent year-on-year in January-February 2025, marking a slight slowdown from December’s 6.2 percent. While growth remains steady, the data suggests mounting external pressures, including US trade tariffs and subdued global demand, are beginning to weigh on the country’s manufacturing sector.

The manufacturing industry grew by 6.9 percent year-on-year, supported by strong gains in high-tech and equipment manufacturing. The value-added of equipment manufacturing increased by 10.6 percent, outpacing the overall industrial sector and accelerating by 2.9 percentage points compared to the same period in 2024. Similarly, high-tech manufacturing expanded by 9.1 percent, 0.2 percentage points faster than the previous year.

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Despite these areas of strength, the slower overall growth rate reflects weaker global trade conditions and uncertainties in domestic consumption. Policymakers have responded by prioritizing domestic demand expansion, announcing a RMB 300 billion (US$60 billion) stimulus package for consumer goods trade-ins, including electric vehicles and home appliances. In terms of ownership, private enterprises grew by 6.7 percent, outpacing state-owned enterprises, which saw a 3.7 percent increase.

Foreign-funded firms, including those from Hong Kong, Macao, and Taiwan, expanded by 3.2 percent, reflecting the impact of heightened trade tensions on foreign investment.

Specific industrial products continued to experience robust demand, with new energy vehicle (NEV) production surging by 47.7 percent year-on-year. Meanwhile, 3D printing devices and industrial robots saw increases of 30.2 percent and 27.0 percent, respectively, highlighting ongoing shifts toward technology-driven industries.

Despite the slower pace of expansion, sentiment indicators showed signs of stabilization. The Manufacturing Purchasing Managers’ Index (PMI) rose to 50.2 percent in February, up 1.1 percentage points from January, while the Production and Operation Expectation Index reached 54.5 percent, suggesting business confidence remains intact.

Services and consumption continue to expand

China’s service sector maintained steady growth in the first two months of 2025, with the Index of Services Production rising 5.6 percent year-on-year, outpacing the previous year’s rate. Information transmission, software and IT services led the expansion with a 9.3 percent increase, followed by leasing and business services (8.8 percent), wholesale and retail (5.6 percent), and finance (5.5 percent).

In February, the Business Activity Index for Services stood at 50.0 percent, indicating that overall service sector activity remained stable, neither expanding significantly nor contracting. However, certain industries—such as air transportation, postal services, and financial services—exceeded the 55 percent threshold, signaling robust growth. This suggests that while these sectors are benefiting from increased demand, possibly due to post-holiday travel and financial market activity, other service industries may be experiencing slower momentum.

Retail sales growth accelerated, rising 4.0 percent year-on-year to RMB 8.37 trillion (US$1.16 trillion), supported by increased consumer spending during the Chinese New Year holiday. Urban retail sales grew 3.8 percent, while rural retail sales outpaced at 4.6 percent. Key consumption categories showed solid gains, with retail sales of grain, oil, and food increasing 11.5 percent, and sports and recreational goods surging 25.0 percent. The impact of trade-in incentives was evident, driving strong sales growth in communication equipment (26.2 percent), cultural and office supplies (21.8 percent), and household appliances (10.9 percent).

Online retail continued to expand, reaching RMB 2.28 trillion (US$315.21 billion), a 7.3 percent increase from the previous year, with physical goods accounting for 22.3 percent of total retail sales. Catering revenue grew 4.3 percent, benefiting from holiday demand, while overall service consumption climbed 4.9 percent year-on-year.

Despite these gains, weak consumer confidence remains a concern, prompting policymakers to introduce new measures, including income-boosting initiatives and childcare subsidies, to sustain domestic demand.

Fixed asset investment rises driven by high-tech sectors

In the first two months of 2025, fixed asset investment (FAI) (excluding rural households) reached RMB 5.26 trillion (US$730.26 billion), increasing 4.1 percent year-on-year, an acceleration of 0.9 percentage points compared to 2024. Excluding real estate investment, FAI grew by 8.4 percent. In February, FAI increased by 0.49 percent from the previous month.

Manufacturing and high-tech industries drove investment growth. FAI in manufacturing rose 9.0 percent year-on-year, while investment in high-tech industries expanded by 9.7 percent. Within high-tech industries, investment in information services surged by 66.4 percent, followed by e-commerce services (31.9 percent), computer and office device manufacturing (31.6 percent), and aerospace equipment manufacturing (27.1 percent).

By sector, the secondary industry saw the highest investment growth at 11.4 percent year-on-year, followed by the primary industry at 12.2 percent. Meanwhile, the tertiary industry grew at a modest 0.7 percent.

Infrastructure investment expanded by 5.6 percent year-on-year, while real estate investment contracted by 9.8 percent. However, the decline in newly built commercial building sales showed signs of easing. The floor space of newly built commercial buildings sold decreased 5.1 percent year-on-year, but this was a 7.8 percentage point improvement compared to 2024. Similarly, total sales value of commercial buildings fell by 2.6 percent, a significantly narrower decline than the 14.5 percentage point drop recorded in the previous year.

Private investment remained flat year-on-year, indicating continued caution in the business environment. However, when excluding real estate, private investment grew by 6.0 percent, suggesting stronger confidence in other sectors.

Foreign trade sees sluggish growth as imports contract

China’s foreign trade in the first two months of 2025 totaled RMB 6.54 trillion (US$907.27 billion), down 1.2 percent year-on-year, reflecting ongoing global economic uncertainties and weak demand. Exports grew by 3.4 percent to RMB 3.88 trillion (US$538.12 billion), while imports fell sharply by 7.3 percent to RMB 2.66 trillion (US$368.35 billion).

Private enterprises remained a key driver of trade, with imports and exports from private firms increasing by 2.0 percent, now accounting for 56.4 percent of total trade, an increase of 1.8 percentage points from the previous year. Exports of mechanical and electrical products rose by 5.4 percent, making up 60 percent of total exports.

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Despite the 3.4 percent growth in exports, China’s outbound shipments lost momentum compared to 10.7 percent growth in December 2024. This slowdown comes amid escalating trade tensions with the U.S. and weaker global demand. Meanwhile, imports fell 8.4 percent, contrary to market expectations of modest growth, signaling sluggish domestic consumption and demand for raw materials. With external pressures mounting, China’s trade outlook remains uncertain.

The latest trade figures suggest that headwinds such as geopolitical tensions and global economic instability could continue to weigh on China’s foreign trade performance in the coming months.

Consumer price drops year-on-year, producer price decline narrowed

In the first two months of 2025, China’s Consumer Price Index (CPI) declined by 0.1 percent year-on-year. Specifically, it increased by 0.5 percent in January but decreased by 0.7 percent in February.

By commodity category, the following price trends were observed in January and February:

• Food, tobacco, and alcohol: Down by 0.7 percent year-on-year, specially:
  • Fresh vegetables: Down by 5.5 percent
  • Grain: Down by 1.4 percent
  • Fresh fruits: Down by 0.6 percent
  • Pork: Up by 8.8 percent
• Clothing: Up by 1.1 percent
• Housing: Up by 0.1 percent
• Articles and services for daily use: Down by 0.9 percent
• Transportation and communication: Down by 1.6 percent
• Education, culture, and recreation: Up by 0.6 percent
• Medical services and healthcare: Up by 0.4 percent
• Other articles and services: Up by 5.9 percent

Excluding food and energy prices, the core CPI increased by 0.3 percent year-on-year. Month-on-month, the CPI rose by 0.7 percent in January but declined by 0.2 percent in February.

Moreover, between January and February 2025, producer prices for industrial products decreased by 2.2 percent year-on-year. Specifically:

• In January, producer prices dropped by 2.3 percent year-on-year, down by 0.2 percent month-on-month; and
• In February, the decline narrowed to 2.2 percent year-on-year, down by 0.1 percent month-on-month.

The purchasing prices for industrial producers fell by 2.3 percent year-on-year during the first two months.

Conclusion: A resilient but uneven start to 2025

China’s economic data for the first two months of 2025 presents a mixed but largely positive picture, with key indicators outperforming expectations. The resilience of industrial production and the rebound in fixed asset investment signal underlying strength, supported by government-driven public investment and stimulus measures. However, the property sector remains a drag on overall growth, with prices yet to bottom out and investment still contracting.

Retail sales reflect a steady recovery in consumption, aided by targeted policy support. The recently introduced Action Plan to Boost Consumption, which includes measures to promote wage growth, reduce financial burdens, and support emerging markets such as AI-powered products, aims to further stimulate consumer confidence. Nevertheless, certain categories, such as automobiles, continue to lag.

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Meanwhile, concerns over external demand persist, with declining foreign investment and trade tensions posing risks to China’s manufacturing outlook. In response, China has rolled out the 2025 Action Plan for Stabilizing Foreign Investment designed to enhance foreign capital’s ability to invest in key sectors like telecommunications and biotechnology. This plan reflects China’s determination to boost foreign investment amid ongoing geopolitical challenges. However, foreign investment remains sluggish, with a 13.4 percent drop in January 2025 following several years of decline.

Despite these challenges, the government’s commitment to economic stabilization and pro-growth policies is evident. The GDP target for 2025 now appears more achievable, with efforts in both domestic consumption and foreign investment playing crucial roles.

Going forward, sustaining this momentum will depend on balancing domestic policy support with external headwinds. While public investment and consumption stimulus provide short-term relief, a revival in private sector confidence and foreign investment remains critical for long-term stability. The coming months will test whether China’s policy toolkit, including the new consumption and FDI action plans, can effectively navigate these challenges, ensuring continued growth in an increasingly uncertain global economic landscape.

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