China's economy shows signs of slowdown as trade war uncertainty continues

Kasikorn Research updates China’s 2025 growth forecast to 4.8%, citing stronger-than-expected first-half performance, but slower growth is expected in the second half.

The global economy has been severely impacted by the United States' tariff policies, which have targeted all countries, with a specific focus on China. 

As one of the world’s largest producers, China has faced a massive trade imbalance with both the US and Thailand, particularly as Chinese goods often pass through third-party countries before reaching the US. This has led to the US experiencing significant trade deficits, prompting President Donald Trump to announce the implementation of Reciprocal Tariffs on February 2, 2025.

This move marks the beginning of a more intense version of the trade war, with the US leveraging aggressive strategies against nations running trade surpluses with it. Particularly targeted is China, which has responded with tariffs exceeding 200%. However, the US continues its strategy of imposing high tariffs on ASEAN countries, including Thailand, with tariff rates remaining unchanged in the first round of negotiations at a staggering 36%.Amid the pressure from the ongoing trade war, which remains highly uncertain, China’s economy showed a slight slowdown in Q2 2025, growing at 5.2% YoY. Although lower than Q1’s 5.4% growth, it surpassed the government’s target. The National Bureau of Statistics of China (NBS) reported the Q2 GDP growth figure as exceeding analysts' expectations of a 5.1% expansion. 

This slowdown was largely attributed to reduced export activity ahead of the expiration of a 90-day tariff exemption for countries excluding China, alongside a supportive "Trade-in Program" encouraging consumer spending. However, the real estate sector remains a continuous drag on China’s economic growth. Despite this, the country’s economy grew stronger than expected in the first half of 2025, expanding at 5.3% YoY.

Kasikorn Research Centre (KResearch) has revised its growth forecast for China’s economy in 2025, now expecting a 4.8% expansion, up from the previous estimate of 4.2%. This adjustment follows stronger-than-expected growth in the first half of the year. However, KResearch cautions that growth in the second half of 2025 is likely to slow. The key factors influencing this outlook are as follows:Government Stimulus Measures

In the second half of 2025, China's economy is expected to continue benefiting from government stimulus measures, such as the "trade-in" program, which still has available funds. However, the impact of these measures on household spending is expected to be limited, as consumer purchases were brought forward during the first half of the year.

Export Outlook

China's export performance in the second half of the year will depend largely on the tariffs imposed by the United States on other countries, particularly in ASEAN. The US has also increased scrutiny of goods transshipped through third countries, as seen with tariffs imposed on Vietnam. As a result, China's export growth is expected to slow down after a strong first half. The ongoing US-China trade war remains highly uncertain, although the two nations recently reached a temporary agreement to reduce Reciprocal Tariffs for 90 days, ending on August 12, 2025. Despite this, the tariff rate of 51.1% on Chinese imports to the US remains high, which could further dampen trade between the two countries.

Deflation Risk and Domestic Pressures

Despite China's focus on boosting domestic spending, the production sector continues to grow faster than consumer demand. This imbalance reflects that China's manufacturing output remains high, which may place downward pressure on prices, especially as exports face higher tariffs. The government is expected to introduce additional measures to manage domestic price wars, which could create short-term challenges for businesses, such as reductions in subsidies for certain industries.

While these efforts may benefit the Chinese economy in the long term, they could exert additional pressure on businesses in the short run, particularly as adjustments to subsidies are made.

Impacts on Thailand

The slowdown in China’s economic growth is likely to affect Thailand, particularly in the tourism sector. Chinese tourist arrivals in Thailand have already declined in the first half of 2025, with a year-on-year drop of 34%. Additionally, the influx of low-priced Chinese goods may continue to pressure Thailand's market with the growing competition from cheap Chinese imports.

Jirada Phakwilaikiat

Senior Research Officer, Kasikorn Research Centre

(2025/07/18-00:00)