"China's 5.4% Growth Yet Market Remains Cold... Downward Pressure on Economy Increases in Q2"

China recorded an economic growth rate of 5.4% in the first quarter of this year, surpassing market expectations, but the market reaction remains cold. Amid prevailing skepticism about the annual 5% growth target, it is anticipated that risks such as U.S.-imposed tariffs will be fully reflected starting from the second quarter. There are calls for strengthening policy momentum, including additional stimulus measures, at the upcoming Politburo meeting scheduled for the end of this month.

On the 17th, Baek Gwan-yeol, a researcher at LS Securities, stated in his report titled "China's Q1 GDP Surprise: Why It Was Not Celebrated?" that "While the surprising first-quarter figures clearly bring us a step closer to the target (annual 5% growth), the market reaction following the data release on the 16th was lukewarm."

Researcher Baek explained, "The reason the market remained sluggish despite the strong indicators is likely because exports, rather than consumption, still led growth." He added, "Considering the sharp increase in sales of home appliances, furniture, and communication equipment in March, it appears that the effects of the Chinese government's consumption stimulus measures, including the 'Igu Hwan-shin' campaign, are beginning to show, but they are not yet at a level sufficient to drive economic growth." He further noted, "Looking at the trend of retail sales as a proportion of GDP, it has not yet recovered meaningfully. Given that March exports recorded a 12.4% increase, far exceeding expectations (+4.4%), it is likely that the first quarter was driven by deflationary (push-out) exports."

In particular, it is pointed out that from the second quarter onward, China will be fully exposed to tariff risks from the Donald Trump administration in the United States. Researcher Baek said that while the export effect may be extended somewhat, especially for tariff-exempt items such as semiconductors and home appliances, "this is likely to be short-lived. Therefore, the longer the delay in consumption recovery, the stronger the downward pressure on the economy will become."

He noted that although the Chinese real estate market, which drives consumption, has passed its bottom, the unsold housing rate in second-tier cities remains at historically high levels, and "additional stimulus measures are still required to achieve the 5% growth target." He added, "The imminent Politburo meeting, which will conduct a mid-term review of economic and policy directions, is the time to reinforce policy momentum once again."

Park Joo-young, a researcher at Kiwoom Securities, also positively evaluated China's first-quarter GDP released the previous day but predicted that "existing concerns such as deflation and real estate issues persist, and downward pressure on the economy due to export sluggishness will increase from the second quarter." Based on last year, China's exports to the U.S. account for 2.8% of China's GDP. He pointed out, "As of the 16th, the consensus for China's GDP growth rate in 2025 is +4.5%, but further downward revisions are expected."

Accordingly, Researcher Park anticipated "additional stimulus measures from China to offset export sluggishness," including cuts in reserve requirement ratios and interest rates in the second quarter, early implementation of fiscal policies, expanded support for service consumption under the 'Igu Hwan-shin' campaign, and announcements of real estate-related policies. He also emphasized, "In the short term, it is important to confirm the contents of the April Politburo meeting."