China’s Economy Shows Strong First-Half Growth, but Structural Imbalances Persist

China’s economy outperformed expectations in the first half of 2025, with GDP reaching RMB 66 trillion, marking a 5.3% year-on-year increase at comparable prices. This pace not only surpassed the government’s annual target of around 5%, as outlined in the Government Work Report, but also aligned with ANBOUND’s earlier projections, reflecting stronger-than-anticipated momentum. 

Regionally, economic output was led by Guangdong and Jiangsu, which posted RMB 6.87 trillion and RMB 6.69 trillion respectively. Guangdong maintained its top position despite a more modest growth rate of 4.2%, while Jiangsu grew at 5.7%. Shandong followed with RMB 5 trillion and 5.6% growth, with Zhejiang close behind at RMB 4.5 trillion and a 5.8% expansion. Sichuan and Henan both exceeded RMB 3.1 trillion in GDP, registering growth rates of 5.6% and 5.7% respectively. Hubei, Fujian, Shanghai, and Hunan also surpassed RMB 2.6 trillion in output, rounding out the top ten provincial economies. Among them, Shanghai recorded a growth rate of 5.1%, while Beijing’s reached 5.5%. 

These top ten provinces have consistently ranked among China’s economic leaders, together contributing over 60% of national GDP. Their stable performance continues to provide a critical foundation for the broader economy. However, Tibet stood out once again as the fastest-growing region with a 7.2% increase, maintaining its national lead for the third consecutive year. Gansu followed at 6.3%. Notably, 14 of the 20 provinces with growth above the national average were located in central and western China, highlighting a geographical shift in economic dynamism. This trend could prompt policymakers to reconsider fiscal transfers to ensure sustained vitality in the traditionally dominant eastern region. 

Despite the strong headline figures, a closer look at the economy through the lens of China’s dual circulation strategy, i.e., focusing on both domestic and international drivers, reveals a more complex and unbalanced picture. In July, several key domestic indicators began to lose momentum. Industrial output growth slowed to 5.7% from 6.8%, and retail sales growth eased to 3.7% from 4.8%. Fixed asset investment rose only 1.6% from January to July, down from the previous 2.8%, while real estate investment deteriorated further, falling 12% compared to an 11.2% decline earlier. Both infrastructure and manufacturing investment also showed signs of weakening, indicating that domestic demand remains under pressure. 

In contrast, external demand emerged as the main growth engine. In the first half of the year, total goods trade reached a record RMB 21.79 trillion, a 2.9% increase year-on-year. Exports grew by a solid 7.2% to RMB 13 trillion, while imports declined by 2.7%, resulting in a sizable trade surplus of RMB 4.21 trillion. This strong export performance played a crucial role in offsetting domestic weaknesses and propping up overall growth. 

However, the growing reliance on external circulation marks a departure from the government’s intended rebalancing toward a more robust domestic market. The combination of waning consumer demand, subdued investment, and continued weakness in the property sector points to a fragile internal economic cycle. The limited impact of past stimulus measures and the short-term drag from anti-monopoly and de-risking policies have further compounded domestic uncertainty. 

Looking ahead, the sustainability of China’s growth faces mounting risks. Should global trade conditions deteriorate or geopolitical tensions intensify, the current external-driven momentum could quickly falter. The long-held assumption that a stable domestic market could act as a buffer in times of external volatility is being tested, as internal circulation shows early signs of strain. 

Addressing this structural imbalance will require decisive and targeted policy action. Stimulating domestic demand, restoring business and consumer confidence, and realigning the dual circulation strategy are all essential to ensure stable and sustainable growth in the second half of 2025 and beyond. 

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