China’s growth outlook for 2025—the Year of the Snake in Chinese astrology—is overshadowed by slowing global activity, domestic headwinds and a new wave of tariffs on the country’s exports to the US. Policymakers have taken action to support growth, and we expect them to do more. In our view, the potential for further easing is positive for fixed-income investors.
Despite continuing problems in its real estate sector, China met its 5% growth target for 2024. But the circumstances in which it did so reflect the challenges facing the economy. The target was met largely because of supportive policy actions late in the year that, together with an increase in export demand, resulted in higher growth momentum in the fourth quarter.
Exports and industrial manufacturing investment (much of it linked to export demand) were the main drivers of growth over the full year, but the fourth-quarter boost to exports had an ominous undertone. Much of it came from a front-loading of demand in anticipation of the tariffs to be imposed on China’s exports to the US by the new Trump administration.
With global growth expected to continue slowing in 2025, China’s prospects depend heavily on how policy actions will mitigate the impact of tariffs and other headwinds. On balance, we think that there is enough leeway for around 4.5% growth. For fixed-income investors, China’s low inflation and the likelihood of further policy easing create, in our view, a potentially attractive opportunity.
The Tariff Challenge
We believe US tariffs will be negative for China’s export growth, but their impact is likely to be less severe than during the first Trump administration when, in 2018–2019, they cost China 1.5% of GDP. Since then, China has diversified its trading relationships, so that the US now accounts for 40% of China’s trade balance compared to 80% in 2018, and 14.5% of its exports compared to 20% (Display).
