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PHBS Think Tank's Macroeconomic Report for Q1 2025

The PHBS Think Tank at Peking University HSBC Business School has released its comprehensive macroeconomic analysis for the first quarter of 2025, emphasizing a strong start for the Chinese economy. The report highlights several key trends, drawn from performance metrics during January and February, where production outstripped forecasts and the cumulative trade surplus reached an unprecedented high for this period. However, the pace of both consumption and investment indicated more moderate growth.

Key Macro Trends

1. Stabilization of the Real Estate Market

The report discusses how governmental policies have contributed to the stabilization of the real estate sector, with leading markets showing signs of gradual recovery. Following several months of uncertainty, the intervention has started yielding positive outcomes, fostering stability and promising growth in housing prices and transactions.

2. Positive Feedback Loop in Auto Exports

Moreover, the car export industry is experiencing a virtuous cycle, where investment, production, and expectations in foreign automotive markets reinforce each other positively. Companies within this sector remain optimistic despite potential tariff impacts on new energy vehicles, indicating a resilient outlook for exports amidst fluctuating global trade dynamics.

3. Support for the New Economy

Domestic industrial policies are promoting investments, production, and retail in strategic sectors, particularly electronics and transport equipment. This support is crucial for maintaining growth momentum in the 'New Economy', which encompasses emerging industries and digital transformation, contributing robustly to GDP.

4. Export Surge Amid Tariff Uncertainty

The analysis also identifies a recent surge in exports of labor-intensive goods and household appliances. However, this robust activity is overshadowed by impending difficulties posed by future U.S. tariffs. Companies are proactively implementing strategies to mitigate potential disruptions in their supply chains and maintain competitiveness.

Economic Forecast

The outlook for the first half of 2025 predicts a GDP growth rate of approximately 5.0%. However, increasing export pressure could impact performance in the second quarter, as the current policy measures may lack the intensity required to significantly boost consumer spending. Anticipations remain high for continued recovery in the real estate market, alongside an emphasis on automation and smart technologies among manufacturers seeking cost reductions.

Policy Recommendations

The report presents several policy recommendations to sustain long-term growth:

• - Intensifying support for companies expanding globally through vertical specialization.
• - Enhancing the effectiveness of fiscal policies to stimulate consumption.
• - Ensuring the issuance of special bonds backed by land reserves reaches at least 700 billion yuan this year.
• - Accelerating tax and fee reforms to address structural unemployment arising from technological advancements.

In summary, while the macroeconomic landscape for Q1 2025 shows signs of promise, attentiveness to global trade tensions, particularly concerning tariffs, and a focus on supportive policies will be essential for maintaining economic resilience as China navigates these complex challenges.