China’s economy displayed initial signs of recovery in the first quarter of 2023, with a year-on-year GDP growth rate of 5.4%. However, a new headwind emerged in April as the ongoing trade war with the United States intensified. The US-China rivalry is poised to continue, complicating the economic landscape for both nations.
During the opening quarter, China’s GDP growth highlighted a recovery in areas like property and personal spending. Much like other countries, the country experienced rapid growth in these areas as it sought to boost domestic demand. Nevertheless, experts emphasize that significant efforts are still needed to solidify these gains and ensure sustainable growth.
The serious backdrop of the trade war has only muddied China’s economic recovery. In a bid to mitigate escalating tensions, China and the US reached a 90-day trade truce, maintaining tariff rates at 10% on US goods and 30% on Chinese products. Nonetheless, this temporary agreement does little to alleviate the underlying issues that fuel the conflict.
China’s equity markets experienced robust performance, with offshore stocks rising by 20% by the end of March. This surge came as US companies ramped up export orders to China, anticipating potential tariff increases in the near future. However, the optimism was short-lived as the trade war resumed in April, introducing new challenges for Chinese industries.
The US has imposed technology sanctions on China, prompting retaliatory measures from Beijing, including restrictions on rare earth exports. These actions reflect ongoing tensions surrounding China’s rise as a global competitor, its industrial policies, and issues related to overcapacity. China’s stance on the Ukraine war has further complicated diplomatic relations between the two countries.
Despite the recent improvements in housing and private consumption, experts caution that China must address several structural issues to strengthen its economic footing. The growth outlook for China remains cautiously optimistic, with projections estimating a GDP growth rate of 4.7% for 2025 and 4.8% for 2026. The medium-term scenario for the trade war suggests a grim possibility, as analysts expect an escalation to 40% tariffs on Chinese goods.