China has released its economic data for the first half of the year, revealing stronger-than-expected growth. The country's gross domestic product (GDP) reached RMB 66 trillion, a 5.3% year-on-year increase at comparable prices. This growth rate, in line with ANBOUND's forecast, exceeds market expectations and surpasses the government's annual target of around 5%, as outlined in the country's Government Work Report.
From a regional comparison, both Guangdong and Jiangsu surpassed RMB 6.6 trillion in total economic output in the first half of the year. Guangdong remained first in the country with RMB 6.87 trillion and a GDP growth rate of 4.2%. Jiangsu ranked second with RMB 6.69 trillion and a GDP growth rate of 5.7%. Shandong came in third with RMB 5 trillion and a GDP growth rate of 5.6%. Zhejiang ranked fourth with RMB 4.5 trillion and a GDP growth rate of 5.8%. Both Sichuan and Henan exceeded RMB 3.1 trillion in economic output, with RMB 3.19 trillion and RMB 3.16 trillion respectively, ranking fifth and sixth. Their GDP growth rates were 5.6% and 5.7%, respectively. Hubei, Fujian, Shanghai, and Hunan each surpassed RMB 2.6 trillion, ranking seventh through tenth. Among them, Shanghai recorded a GDP growth rate of 5.1%, while Beijing's GDP growth rate was slightly higher at 5.5%.
Compared to 2024, the top ten regions in terms of total economic output have remained stable. These major economic provinces have become the main pillars of the national economy, contributing more than 60% of the country's total GDP and serving to stabilize China's overall economic foundation. In contrast, the region with the highest GDP growth rate in the first half of the year was Tibet, with an economic growth of 7.2%. In fact, Tibet also ranked first in national economic growth in both 2023 and 2024. With the launch of the massive hydropower project on the lower reaches of the Yarlung Tsangpo River in the second half of the year, Tibet is expected to maintain its leading position without much difficulty. In addition, Gansu ranked second in GDP growth rate in the first half of the year, reaching 6.3%.
Noteworthily, in the first half of this year, among the 20 Chinese provinces with economic growth rates higher than the national average, 14 were located in the central and western regions, while only 6 were in the eastern region. Therefore, moderately reducing a portion of transfer payments to ensure that the eastern region, touted as China's economic engine, can continue to drive growth may become a future policy option.
As with everything, there are two sides to the coin. Analyzing the Chinese economy using the dual circulation framework, i.e., domestic circulation and international circulation, the country's economic data in the first half of the year reveals rather unusual and imbalanced signals.
In July, industrial value-added increased by 5.7% year-on-year, compared to the previous figure of 6.8%. Total retail sales of consumer goods rose by 3.7% year-on-year, down from the previous 4.8%. More notably, fixed asset investment from January to July grew by only 1.6% year-on-year, compared to the previous 2.8%. Real estate investment declined by 12.0%, worse than the previous decline of 11.2%. Broad infrastructure investment grew by 7.3%, down from 8.9% previously. Manufacturing investment rose by 6.2%, compared to 7.5% in the prior period.
The actual bright spot lies in exports. In the first half of the year, China's total value of goods trade reached RMB 21.79 trillion, a record high, marking a year-on-year increase of 2.9%. Of this, exports amounted to RMB 13 trillion, up 7.2% year-on-year, while imports totaled RMB 8.79 trillion, down 2.7%. The trade surplus reached RMB 4.21 trillion. This substantial trade surplus clearly indicates that, in the first half of the year, net exports played a pivotal, supporting pillar role in China's economic growth.
By comparing other areas, the importance of net exports becomes even more evident. In July, most indicators, such as investment, consumption, industrial production, real estate sales, PMI, and credit, showed varying degrees of slowdown. Notably, consumption declined for two consecutive months; infrastructure and manufacturing investment recorded rare year-on-year contractions for the month; real estate investment and sales saw further declines; and the scale of new credit turned negative for the first time in 20 years. These developments are likely linked to factors such as the waning effect of the "trade-in" policy, a slower pace of fiscal stimulus, and the short-term contractionary impact of the measures to counter excessive competition. That said, at its core, the issue remains insufficient domestic demand and weak expectations. Simply put, China's domestic economic circulation is showing clear signs of weakening.
It can be reasonably concluded that in the first half of this year, China's economic performance was significantly supported by the external circulation, where exports played a crucial role in sustaining its growth. Should any disruptions occur within the external circulation in the future, China's economic outlook could deteriorate substantially. Previously, it was believed that China's economy could rely on 1.5 cycles in the worst-case scenario, meaning the domestic circulation remained relatively stable, and even if the external circulation weakened, at least part of it would still function. However, the reality has been that the domestic or internal circulation has exhibited early signs of weakening and is increasingly fragile. Ironically, the external circulation has become the primary support for the economy, enduring considerable geopolitical pressures to sustain growth.
From an analytical standpoint, this atypical structural imbalance presents a significant challenge that demands the earnest attention of China's policymakers. It is crucial to proactively formulate and implement targeted policy measures to address these imbalances, thereby facilitating stable and sustainable economic growth in 2025 and ensuring the attainment of the annual growth objectives.
