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Strong Start to China's Economy in Q1 2025

The experts from the Peking University HSBC Business School (PHBS) have released their macroeconomic analysis for the first quarter of 2025, highlighting the robust beginning of the year for the Chinese economy. In January and February, economic output exceeded expectations, and the cumulative trade surplus achieved a historic high during this period. However, it was noted that consumption and investment are increasing at a slower pace.

Key Macroeconomic Trends from Q1 2025

The report outlines four significant trends observed in the first quarter:

1. Stabilization of the Real Estate Market: With the help of policy measures, the real estate sector is showing signs of gradual recovery. Major markets are stabilizing, driven by government initiatives aimed at ensuring steady growth in the housing sector.

2. Positive Feedback in Automotive Exports: Investments, production, and expectations for overseas automotive markets have positively reinforced each other within a favorable cycle. Leading companies remain optimistic about the potential impact of tariffs on vehicles powered by new energy sources, highlighting the resilience of the automotive industry.

3. Support for the New Economy's Growth: Domestic industrial policies have bolstered investments and retail in sectors such as electronics and transportation equipment, helping to maintain growth momentum in the new economy.

4. Export Growth Amid Tariff Uncertainties: The increase in exports has led to a temporary surge in production of labor-intensive goods and domestic appliances. However, this growth faces risks arising from potential upcoming U.S. tariffs, prompting many companies to take preemptive measures to mitigate potential disruptions.

Looking ahead to the first half of 2025, GDP growth is projected to reach 5.0%. However, export pressures may intensify in the second quarter of 2025, and existing policies might not be robust enough to significantly stimulate consumption. The real estate market is expected to continue its stable recovery, while manufacturers are likely to expand their use of automation and smart technologies to cut costs.

Policy Recommendations

The report offers several policy recommendations to strengthen support for businesses expanding globally:

• - Encourage Vertical Specialization: This can promote efficiency and innovation across sectors.
• - Enhance Fiscal Policies: policies should be optimized to stimulate consumption effectively.
• - Meet Specific Bond Issuance Targets: This implies that this year’s issuance of special bonds for land reserves should achieve at least 700 billion yuan.
• - Accelerate Fiscal and Tax Reforms: Addressing structural unemployment caused by technological changes is imperative for long-term stability.

In conclusion, while the initial indicators for Q1 2025 are promising, external challenges remain, underscoring the need for strategic foresight and agile policy adjustments to ensure sustainable growth in China's diverse economic landscape.