Assessing China's 5% 2025 GDP Growth in the Context of Trade Tensions and Structural Weaknesses

China's 2025 GDP growth of 5%-a-figure that has surprised many observers-exists in a paradox. On one hand, the country faces persistent structural weaknesses, including a property sector slump and weak domestic consumption. On the other, its export-driven sectors, particularly electric vehicles (EVs) and semiconductors, have demonstrated remarkable resilience amid U.S. trade tensions and global economic headwinds. This duality creates a unique investment landscape: one where strategic opportunities in export-resilient sectors coexist with systemic risks tied to China's economic rebalancing efforts.

Export Resilience: Diversification and Sectoral Strength

China's ability to maintain a record $1.19 trillion trade surplus in 2025, despite Trump-era tariffs and a weak global economy, underscores its export resilience. This success is driven by a deliberate shift away from the U.S. market toward Southeast Asia, Africa, Latin America, and Europe. For instance, exports to the European Union surged by 14.8% in December 2025 alone, highlighting the effectiveness of this diversification strategy.

Key sectors fueling this resilience include EVs and semiconductors. China's EV exports grew by 48.8% year-on-year in 2025, with the country dominating global sales and production. Semiconductor exports rose by 24.7%, reflecting progress in domestic chip production and integration into high-tech industries. These sectors benefit from China's "Made in China 2025" strategy, which prioritizes technological self-reliance through subsidies, tax incentives, and supply chain integration.

However, this export-driven growth comes at a cost. Domestic demand remains weak, constrained by a cultural preference for saving over spending and a prolonged property downturn. The result is an economy reliant on exporting excess industrial capacity rather than achieving a balanced, consumption-driven model.

Structural Weaknesses: Overcapacity and Rebalancing Risks

China's trade surplus has raised concerns among trading partners, who view its low-cost goods as a distortion of competitive markets. The country's overcapacity in sectors like solar and EVs has led to policy adjustments, such as the removal of export tax rebates for solar products. Yet, the broader issue of structural imbalances persists.

The property sector, once a pillar of growth, has been downgraded in importance under the 15th Five-Year Plan, which emphasizes "high-quality development" and technological self-reliance. While this shift aims to reduce reliance on speculative real estate, it has also exposed vulnerabilities in domestic consumption. China's household savings rate remains elevated, and weak wage growth continues to stifle demand.

Strategic Investment Opportunities: EVs and Semiconductors

Despite these challenges, China's EV and semiconductor sectors offer compelling investment opportunities.

Electric Vehicles: Chinese firms like BYD and CATL have invested $143 billion globally in EV and battery projects since 2014, securing a dominant position in the market. The government's extended auto trade-in subsidies and "go global" strategy-building regional hubs in Hungary, Indonesia, and Africa- further solidify this advantage. Even as U.S. and EU tariffs rise, China has pivoted to emerging markets like Southeast Asia and the Middle East.

Semiconductors: While China lags in advanced-node chips, its mature-node production has grown four times faster than global demand since 2015. Domestic adoption of Chinese chips in EVs has reached 15%, reducing reliance on foreign suppliers. The recent Nexperia chip trade agreement, brokered between the U.S. and China, signals a temporary easing of tensions in this critical sector.

Trade Tensions and Mitigation Strategies

Trade tensions remain a wildcard. The EU's new tariffs on Chinese EVs and U.S. export controls on advanced semiconductors could disrupt growth. However, China has taken steps to mitigate these risks. For example, Canada agreed to slash tariffs on Chinese EVs and canola, signaling a potential shift in trade dynamics. Additionally, China has fully opened its manufacturing sector to foreign capital, removing all restrictions under the national negative list for foreign investment.

Conclusion: Balancing Growth and Rebalancing

China's 5% GDP growth in 2025 is a testament to its export resilience, but it also highlights the fragility of an economy still reliant on external demand. For investors, the EV and semiconductor sectors represent high-conviction opportunities, supported by government policy and global demand. However, structural weaknesses-particularly in domestic consumption and overcapacity-pose long-term risks.

The path forward for China-and for investors-lies in navigating this duality. Strategic investments in export-resilient sectors must be balanced against the need for economic rebalancing. As China's 15th Five-Year Plan unfolds, the interplay between trade tensions, policy adjustments, and market dynamics will shape the next chapter of its economic story.