China’s economy showed strength in April, even with US tariffs in place. Industrial production remained stable, backed by early shipments to other markets after a brief pause in tariffs. Retail sales and the property market faced challenges in April, with lower-than-expected retail sales and urban fixed asset investment (FAI). However, there were some positive month-on-month trends, and the surveyed unemployment rate fell slightly. Property indicators, such as home prices and sales, declined.

Revised 2025 GDP Growth Forecast

Due to the short-term effects of the US-China trade agreement, China’s GDP growth forecast for 2025 has been raised from 4.3% to 4.6%. Predictions for the second quarter of 2025 indicate a growth rate of 4.9% year-on-year, while the latter half is expected to be 4.2%. This outlook relies on a stable trade agreement between the US and China. An interest rate cut of 0.1% is anticipated in the fourth quarter of 2025. By the end of Q4 2025, projections suggest that the 7-day reverse repo rate will be 1.30%, the 1-year loan prime rate (LPR) at 2.90%, and the 5-year LPR at 3.40%. In April, industrial production held steady, helped by increased exports to markets outside the US. This activity followed a brief pause in tariffs and affected key export sectors. While overall production was stable, focus shifted from US markets to those unaffected by tariffs, providing some cushioning against a potential slowdown. Traders dealing in sensitive macro instruments should take note of this trade flow shift and its implications for manufacturing contracts. In contrast, retail sales fell more than expected and were weaker than the monthly trend suggested. The property market also faced challenges. Prices decreased, and transaction activity slowed, particularly in tier-two and tier-three cities. Urban fixed asset investment fell short of expectations, showing that private developers and local governments are still hesitant. Despite these issues, the national unemployment rate showed a slight improvement—a modest but positive sign. This increase in confidence may not completely counteract the slowdown in property demand, but it helps prevent further decline for now.

Policy Expectations and Impact

The GDP growth target for next year has been raised from 4.3% to 4.6%, based on the expectation of a stable trade deal with the United States. We anticipate a stronger rate in the second quarter—around 4.9% year-on-year—before activity is expected to slow again in the latter half of 2025. However, risks still exist due to potential changes in trade policy or renewed weakness in the property sector. Therefore, pricing for contracts linked to growth indicators should be watchful of upcoming data releases in the following weeks. On the policy side, the anticipated interest rate cut at the end of 2025 reflects cautious optimism and targeted support. Projections for the 7-day reverse repo rate and the main 1-year and 5-year loan prime rates indicate a deliberate easing approach. These expected rates—1.30%, 2.90%, and 3.40%, respectively—represent the funding environment for traders through the end of the year. As we examine the yield curve and pricing for short-term liquidity instruments, these rates define the parameters for short-dated swaps and repo-linked strategies. Create your live VT Markets account and start trading now.

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