China Q1 GDP Growth Beats Expectations, But US Tariff Shock Looms Large

BEIJING: China's economic growth in the first quarter exceeded predictions, driven by strong consumption and industrial production; however, analysts are concerned that momentum may decline significantly as U.S. tariffs represent the greatest risk to the Asian powerhouse in many years. President Donald Trump has increased tariffs on Chinese products to unprecedented heights, prompting Beijing to impose countervailing duties on U.S. imports, which have escalated tensions between the world's two largest economies and unsettled financial markets. Data released on Wednesday indicated that China's gross domestic product (GDP) increased by 5.4 per cent in the January-March quarter compared to the same period last year, remaining consistent with the fourth quarter but surpassing analysts' predictions in a Reuters poll, which forecast a 5.1 per cent rise.

China GDP beats, tariff risk

Growth momentum is anticipated to slow significantly in the upcoming quarters as Washington's tariff impact affects the vital export sector, increasing pressure on Chinese authorities to implement additional support initiatives to maintain stability in the world’s second-largest economy. Xu Tianchen, a senior economist at the Economist Intelligence Unit, remarked that government stimulus enhanced consumption and facilitated investment, labelling the 5.4 per cent growth rate as "a very good start." "In both of the previous two years, China experienced a strong first quarter followed by a lacklustre second quarter," Xu remarked, emphasising that "a vigorous and prompt policy reaction" is required due to the extra strain from U.S. tariffs. Exports have stayed a solitary highlight in China's economy, with a trillion-dollar trade surplus last year supporting growth despite a lengthy downturn in the property sector and weak domestic demand hindering a robust recovery. This adds to the policy difficulties for Beijing since Trump's unwavering attention on China's enormous trade machine hampers a crucial growth factor.

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China's Premier Li Qiang stated this week that the nation's exporters will need to manage "significant" external changes and pledged to promote increased domestic consumption. Investors in China overlooked the better-than-anticipated data, causing the benchmark Shanghai Composite Index (.SSEC) to drop nearly 1.0 per cent and weakening the yuan, as confidence stayed weak amidst a bleak growth forecast. In fact, the quarter-on-quarter momentum revealed a weaker foundation, as the economy grew 1.2 per cent in the first quarter, down from 1.6 per cent in October-December. The Reuters poll indicated that for 2025, the economy is anticipated to expand at a modest 4.5 per cent rate annually, down from last year's 5.0 per cent rate and below the official aim of approximately 5.0 per cent. Numerous analysts have significantly reduced their GDP predictions for this year. Due to the U.S. tariffs, ANZ on Wednesday lowered its GDP predictions for China, reducing the 2025 forecast from 4.8 per cent to 4.2 per cent and the 2026 estimate from 4.5 per cent to 4.3 per cent. "Analysts at UBS noted that the tariff shock presents unparalleled challenges for China's exports and will also lead to significant changes in the domestic economy." Although many other nations have been affected by U.S. tariffs, Trump has specifically aimed at China for the highest duties.