China’s economy is expected to grow just above the government’s target in the second quarter of 2025. Analysts from a Bloomberg survey predict a 5.1% year-on-year GDP rise for the quarter that ends in June. This growth comes from strong exports, supported by a trade agreement with the U.S., and fiscal policies that boost domestic spending. Therefore, many economists think Beijing might hold off on more stimulus measures for now. However, Citi and Nomura believe more policy easing will be needed later in the year. They predict a 10 basis point cut in interest rates and a 50 basis point reduction in banks’ reserve requirements, due to the fading impact of earlier stimulus efforts and increased exports earlier in the year. The important data will be released on Tuesday, July 15, 2025, at 0200 GMT and at 2200 US Eastern Time on Monday, July 14, 2025. While the strong growth rate may suggest overall improvement, it does not signal success across all sectors. The 5.1% forecast is only slightly above the official targets, indicating a performance shaped by temporary increases in exports, especially due to the trade agreement. Several factors that boosted growth earlier in the year may begin to diminish. Although export activity has been strong, it relies on external demand, which has varied in past periods. It’s uncertain if it can remain a reliable driver, especially as global inventories stabilize and past purchases decline. Beijing’s hesitation to provide more support suggests confidence in short-term metrics. Still, analysts from Citigroup and Nomura emphasize that earlier support measures are starting to lose their effectiveness. While policy is on pause for now, it may not hold through the rest of the year. Yamazaki pointed out that policymakers have limited options for boosting demand, and cautioned that the initial impact of the U.S. deal might have overshot. Similarly, Liu’s team expects future rate cuts and reserve requirement reductions, not as reactions to current data, but in anticipation of possible weaknesses at the start of the fourth quarter. In the meantime, it’s important to look beyond the overall GDP number, as it may hide some issues. Durable goods orders are showing weaker momentum, and the property sector remains unstable. We’ve noticed drops in credit data, which often signal declines in industrial production. With the official release scheduled for early Tuesday morning GMT, overnight market movements might provide early insights. It is advisable to prepare accordingly. If the numbers meet expectations or exceed them, some may think the recovery is solid. However, that view could overlook concerns about long-term demand and the possibility that short-term supports, like fiscal measures, could be limited later in the year. We also recognize that last year’s underperformance might still be skewing current trends. Traders should pay attention not only to the headline GDP but also to data on fixed asset investment and retail sales, especially monthly changes. Any negative surprises in those areas would strengthen the argument for gradual additional easing, as noted by Kobayashi last week. For now, hedging strategies should consider this potential shift, not due to worsened sentiment, but because the pace of policy response is inconsistent. We’ve been adjusting our exposure in response. The bond market’s direction will likely depend on guidance from the PBOC, which indicated patience in its June minutes, but not a permanent stance. Caution regarding commodity-linked contracts and sector-focused indexes may also be wise. The next policy decisions could hinge not only on GDP figures but also on inflation trends and labor data, especially in inland industrial areas. In positioning for early August, we’ve opted for a more delta-neutral stance while waiting for further signals from local monetary authorities.

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