China’s economy and markets have been battered over the last few years due to an epic property crisis and post-pandemic scarring — but it may now be turning the corner.
Data from the world’s second-largest economy for the first two months of the year beat expectations and real GDP growth is tracking slightly over 5%, Goldman Sachs analysts wrote in a Friday note. This is higher than the firm’s 4.9% forecast.
“The narrative shifted notably in early 2025. Although economic activity remained soft, many indicators appear to have stopped deteriorating,” wrote the analysts at Goldman Sachs.
The analysts’ assessment of China’s economy came just days before April 2, when US President Donald Trump’s administration is planning to impose new reciprocal tariffs.
Goldman Sachs’ analysis showed that despite a 20 percentage-point increase in US tariffs in the past two months, an index for Chinese trader uncertainty hasn’t risen much, “implying that the tariff drag to domestic investment might be smaller than we currently expect.”
Credit growth is also accelerating — a sign of potential growth as businesses and people borrow — and on-the-ground signs from Goldman Sachs’ research teams indicate stability or marginal improvements in several key sectors, including property.
Meanwhile, stock markets have been buoyed by a tech-led rally prompted by the rise of the cost-efficient AI model DeepSeek and Chinese leader Xi Jinping’s meeting with private sector entrepreneurs last month as a sign of endorsement.
To be sure, much of China’s current economic fundamentals have not changed. Industrial activity and investment in manufacturing are still outperforming, while property activity remains depressed. Inflation also remains “too low” and employment remains challenging, wrote the Goldman Sachs analysts.
Despite government initiatives, including a trade-in program to incentivize new purchases, consumption is still slow — although there are bright spots.
“While there has been no meaningful rebound in overall consumption, our consumer analysts note signs of bottoming out: the seasonal consumption pull-back after the Lunar New Year holiday was better than feared; pricing and promotion trends appeared to be more stable and less aggressive than before,” wrote Goldman Sachs’s analysts.
Lynn Song, the chief economist of Greater China at ING, wrote in a note last week that China’s consumption is on a “gradual recovery momentum” as retail sales in the first two months of the year beat expectations. The growth was boosted by items under the trade-in program, including automobiles, home appliances, and mobile phones.
Even spending on discretionary items that did not benefit from government trade-in programs got off to a “decent start” this year, said Song, citing growth rates of 5.4%, 4.4%, and 3.3% in retail spending for gold and jewelry, cosmetics, and apparel, respectively.
Such budding positive signs could help drive even more positivity.
“Just like in 2023 and 2024 when various negative forces amplified one another and yielded outsized headwinds to growth, positive catalysts in early 2025 have the potential to reinforce each other and generate a more virtuous cycle,” wrote analysts at Goldman Sachs.
Still, nearly all economists and analysts are cautious about calling for a full-on recovery for China’s economy. It could be weighed down by issues such as Trump’s trade war and the prolonged property downturn.
As Nomura economists wrote in a note last week, better-than-expected Chinese economic data “mask serious underlying challenges.”