On Wednesday, China is projected to report a growth rate of approximately five percent for the first quarter, driven largely by exporters aiming to mitigate the impact of increased US tariffs, although the economy continues to struggle with weak domestic consumption, according to analysts.
The ongoing tensions between Beijing and Washington have escalated since President Donald Trump initiated a widespread tariff campaign, particularly targeting imports from China.
In a back-and-forth exchange, tariffs on Chinese goods have reached 145 percent, while Beijing has implemented retaliatory tariffs of 125 percent on US products.
The official data to be released on Wednesday will provide the first indication of how the escalating trade conflict is influencing the delicate recovery of China’s economy, which was already facing challenges from low consumer spending and a real estate market burdened by debt.
Analysts surveyed by AFP anticipate that the Chinese economy, the second largest in the world, experienced a growth of 5.1 percent from January to March, a decrease from 5.4 percent in the previous quarter.
Recent figures disclosed on Monday indicated that China’s exports surged by over 12 percent year-on-year in March, exceeding expectations. Analysts attribute this spike to a surge of orders made in advance of Trump’s “Liberation Day” tariffs set for April 2.
This export surge is expected to have positively impacted economic growth in the first quarter.
However, experts caution that the reported GDP figures might be an isolated positive note in a year that is likely to present further challenges for the world’s second-largest economy.
“Multiple pressures are currently impacting China’s economy,” stated Sarah Tan, an economist at Moody’s Analytics.
“The boost from exports is diminishing due to the implementation of new tariffs from the US,” she added.
“Domestic demand continues to lag, exacerbated by high unemployment rates and a real estate market undergoing correction,” Tan mentioned.
The first quarter likely performed “relatively well,” according to Alicia Garcia-Herrero, Asia Pacific chief economist at Natixis, but she expects the second quarter to see a significant downturn.
She emphasized the increase in exports to the US as businesses rushed to avoid additional tariffs.
Moreover, improved consumption during the Lunar New Year festivities, when millions returned to their hometowns, contributed positively to the quarterly results, she noted.
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In response to economic challenges, Beijing has introduced a range of proactive measures over the past year, including cutting interest rates, easing homebuying restrictions, increasing local government debt limits, and enhancing support for financial markets.
However, after an intense market rally in the previous year fueled by hopes for substantial stimulus, optimism has faded as the government has not clarified the specifics of its financial assistance plans.
Experts anticipate that the Chinese government will introduce additional support measures to mitigate the economic impact of tariffs.
Key to this effort will be stabilizing the beleaguered real estate sector, which now constitutes six percent of GDP, as noted by analyst Guo Shan.
“If China has successfully navigated its real estate adjustments over the past three years, it should be capable of managing the repercussions of US tariffs this year, especially if it can stabilize the real estate market,” Guo, a partner at Hutong Research, explained.
Tan from Moody’s Analytics also expects the government to utilize fiscal and monetary tools this year.
“The authorities will likely introduce more targeted stimulus for households and the People’s Bank of China is expected to reduce major lending rates,” she added.
In an effort to safeguard its economy against tariffs, China is focusing on boosting consumer spending and investing in strategic industries.
Nonetheless, the increasingly strained relationship between the two nations could lead to losses amounting to hundreds of billions in trade and severely impact a crucial economic sector, which is even more critical in light of weak domestic demand.
ANZ analysts have warned of considerable risks to China’s GDP growth under these circumstances.
They suggested that in a worst-case scenario, China could face a shock similar to the 2008 financial crisis.
The second quarter is likely to experience starker declines due to the tariff situation, as pointed out by Guo.
“We can expect a drop in exports, and investment is likely to slow as uncertainties will weigh on business decisions,” Guo remarked.
Last month, China’s leadership set an ambitious growth target of around five percent for the year, pledging to prioritize domestic demand as the primary engine of economic growth.
Many economists view this target as optimistic given the current economic challenges.