Spotlight on China

In our last update on China in October 2024, we examined the sharp rebound in Chinese equity markets following the announcement of new stimulus measures by the authorities. This turnaround came after a challenging period marked by geopolitical tensions, a struggling property sector, weak consumer sentiment, and inconsistent policy support, all of which had weighed heavily on investor confidence.

As a key driver of global economic activity and financial market dynamics, China warrants regular analysis to ensure an up-to-date understanding of its evolving macroeconomic landscape. So, where do things stand now? In this update, we explore the latest developments in China’s economy and equity markets.

Tariffs have dominated any talk of China this year. In early May, the trade war between the US and China finally showed signs of de-escalation as the two nations agreed a truce to lower import taxes on goods traded between them. Both nations agreed to cancel some tariffs completely, and suspend others for 90 days, with the additional tariffs imposed by each side significantly lowered. With talks between the governments set to continue, a further deal could be struck – but moves made by the Trump presidency have so far been difficult to predict, and so we will continue to watch how the next few weeks and months unfold.

China has faced an array of economic problems for years, including a property crisis, high unemployment and low consumer spending. Yet the country reported full year economic growth of 5% for 2024, meeting its official target and narrowly beating economists’ forecasts of 4.9%.

April started turbulently as the US president announced a broad set of global trade tariffs.

The growth target remains unchanged for 2025 and was accompanied by a pledge to boost the economy via a raft of support measures. Plans include issuing close to $180bn in special treasury bonds to help fund stimulus measures; an increase in borrowing allowances for local governments; and an increase in the fiscal deficit by one percentage point to 4% of GDP – notably the highest level in decades. To help tackle unemployment, the government plans to create over 12 million jobs in cities.

The key question is whether these measures will be enough to boost consumption and help get the economy back on track. In Q1 2025, China reported an unexpectedly strong 5.4% GDP – but crucially, this was before the full force of the recent tariffs hit – and the full economic impact of the trade war with the US is yet to be seen. The country’s vast manufacturing sector has already been impacted, with many export orders cancelled and factory workers being furloughed as production levels are reduced.

Real estate is a key sector within the Chinese economy. When we wrote about China last year, we discussed the negative investor sentiment towards a sector in crisis, sparked in 2021 by the default of Evergrande Group and other major property developers. Meanwhile, the government had just announced several supportive measures, such as reduced mortgage rates and lower deposit requirements for new home purchases.

In 2025, efforts to stabilise the real estate market have continued, including fiscal incentives and a relaxation of homebuying restrictions. Tentative signs of recovery have led analysts to upgrade their forecasts on the sector. However, the wider current environment of trade tariffs and global uncertainty may keep the sector under pressure for some time yet.

Chinese equities rallied in early 2025 as investors flocked to the nation’s tech firms in response to DeepSeek’s AI breakthrough, on optimism around the advancement of large language models (LLMs) in the country. This upswing was a welcome boost to China’s markets, following repeated challenges from the tariff tensions and deflationary pressures in the Chinese economy as outlined above.

Real estate shows early signs of recovery as China eases restrictions and boosts support.

China’s economy and equity markets have shown encouraging signs of resilience, but meaningful challenges persist. The recent tariff truce with the US offers hope for easing trade tensions, though the full economic impact remains uncertain. As China navigates this complex and evolving landscape, vigilance from investors is essential. While we continue to advocate for a well-diversified portfolio across regions and asset classes, closely monitoring China’s unique risks and opportunities remains key to informed decision-making.