Economic Indicators and China's GDP, FDI, and Trade Trends

China’s Q1 2025 economic performance underscores its resilience amid escalating great-power competition. The 5.4 percent GDP growth, though bolstered by temporary factors, demonstrates the efficacy of targeted fiscal stimulus and export diversification. However, mounting trade barriers and demographic constraints necessitate deeper structural reforms.

For multinational enterprises, opportunities lie in China’s green tech and digital infrastructure sectors, where policy incentives remain robust. Conversely, exporters must contend with supply chain reconfigurations as U.S.-China decoupling accelerates. As MOFCOM intensifies efforts to attract high-value FDI, China’s ability to balance geopolitical tensions with economic openness will determine its trajectory through the remainder of the decade

China’s GDP Growth and Economic Outlook for 2025

The first quarter of 2025 delivered a stronger-than-expected GDP expansion of 5.4 percent year-on-year, surpassing both market forecasts and the government’s annual target of "around 5 percent". This growth, equivalent to RMB 31.88 trillion (US$4.35 trillion), builds on the momentum of late 2024, which saw a 5.2 percent annual growth rate. The industrial sector emerged as a key contributor, with value-added output rising by 6.5 percent year-on-year, while the services sector grew by 5.3 percent. March alone witnessed a 7.7 percent surge in industrial production, driven by accelerated manufacturing activity in anticipation of U.S. tariff hikes .

However, this growth masks underlying vulnerabilities. The export sector, which expanded by 6.9 percent in yuan terms during Q1, benefited from a "pre-tariff rush" as exporters front-loaded shipments ahead of anticipated U.S. trade barriers. Retail sales growth, though improving to 4.6 percent year-on-year, remains subdued compared to pre-pandemic levels, reflecting persistent consumer caution. Fixed-asset investment grew modestly at 4.2 percent, indicating tempered confidence in long-term capital deployment. Policymakers have emphasized the need for "proactive fiscal measures" to consolidate recovery, particularly through infrastructure spending and tax incentives for high-tech industries.

Inbound FDI: Policy-driven recovery

Foreign direct investment into China presented a mixed picture in early 2025. Actual FDI utilization fell by 20.4 percent year-on-year to RMB 171.21 billion (US$23.87 billion) in January-February, continuing the decline observed in 2024. This downturn contrasts with the 15.7 percent increase in Chinese outbound FDI during the same period, highlighting shifting capital flows. In response, the Ministry of Commerce (MOFCOM) has unveiled a three-pronged strategy to revitalize inbound investment:

• Market access liberalization: Full removal of manufacturing sector restrictions and phased openings in telecommunications, healthcare, and education.

• Catalogue revisions: Expansion of the Catalogue of Encouraged Industries for Foreign Investment to include renewable energy and AI infrastructure.

• Competitive neutrality: Ensuring foreign firms’ equal participation in government procurement and domestic subsidy programs.

These measures aim to counterbalance geopolitical risks and redirect capital toward strategic sectors. Early signs of success include Tencent’s $1.3 billion investment in a French gaming subsidiary and HongShan Capital’s $1.2 billion acquisition of Sweden’s Marshall Group.

Outbound FDI: Energy and infrastructure dominance

Chinese overseas investment reached $19.7 billion in Q1 2025, marking a 15.7 percent increase from 2024 levels. Over 79 percent of this total ($15.5 billion) targeted greenfield projects in energy and infrastructure, exemplified by LONGi Green Energy’s $4 billion hydrogen facility in Nigeria and Beijing Haoyang’s $2.2 billion data center in Thailand. This shift reflects China’s dual objectives of securing resource supply chains and exporting technological expertise under the Belt and Road Initiative.

China’s foreign trade rebounded sharply in early 2025, with total volume growing 8.7 percent year-on-year to RMB 6.61 trillion (US$918.14 billion) in January-February. Exports surged by 10.3 percent, led by electric vehicles (EVs), lithium-ion batteries, and solar panels—sectors where China commands over 60 percent of global production capacity. March exports alone jumped 13.5 percent, as firms accelerated shipments ahead of U.S. tariffs scheduled for mid-2025.

However, the sustainability of this boom is uncertain. Bilateral trade with the U.S. remains volatile, with Chinese exports facing an average tariff rate of 19.3 percent—nearly six times the 2017 level. The EU’s upcoming Carbon Border Adjustment Mechanism (CBAM) further threatens to erode competitiveness in steel and aluminum exports. In response, China has deepened trade ties with emerging markets; Latin American and African trade volumes grew by 6.8 percent and 7.1 percent respectively in Q1, cushioning the impact of Western trade barriers.