China’s Economy Shows Resilience as Retail Sales Surge, Stimulus Plan Aims to Boost Domestic Spending

China’s economy showed signs of resilience in early 2025, with retail sales and industrial production exceeding expectations, but concerns remain over rising unemployment and the ongoing impact of U.S. tariffs. Data released for January and February indicated that retail sales grew 4.0% year-over-year, accelerating from December’s 3.7% gain. This improvement was largely attributed to strong Lunar New Year spending, particularly in entertainment and dining, and boosted by government subsidies targeting home appliance and mobile phone purchases. However, factory output slowed to 5.9% from 6.2% in December, signaling potential weakness in the manufacturing sector, while the urban unemployment rate climbed to 5.4%, the highest in two years.

Despite economic headwinds, Beijing remains committed to its 5% GDP growth target for 2025, though analysts warn achieving it may be challenging amid weakening exports and a prolonged property downturn. The recent set of economic data followed disappointing trade figures and soft inflation readings, reinforcing the need for further stimulus. In response, Chinese authorities have unveiled a “special action plan” aimed at boosting domestic consumption. This plan includes income-raising initiatives, a childcare subsidy scheme, and an expansion of a 300-billion-yuan ($41.5 billion) consumer goods trade-in program to encourage purchases of electric vehicles and household appliances.

The government’s broader push to stimulate demand comes as it braces for heightened trade tensions with the U.S. The latest round of tariffs imposed by the Trump administration poses additional risks to China’s export-dependent economy, and policymakers are keen to offset this impact by strengthening the domestic consumption base. Additionally, China’s leadership has signaled a willingness to maintain ample liquidity in financial markets, with the People’s Bank of China (PBOC) pledging support through measures such as reserve requirement ratio (RRR) cuts. However, analysts remain divided on whether the PBOC will lower its 1-year and 5-year loan prime rates (LPR) in the near term. Given lingering trade uncertainties and the mixed domestic economic picture, some expect authorities to hold off on rate cuts for now, opting instead for targeted fiscal measures to support spending.

The latest economic developments have had notable implications for Chinese equity markets. The Shanghai Composite Index rose 0.2% following the release of the data, while the yuan held steady against the dollar. E-commerce giants Alibaba (BABA) and JD.com (JD) could be key beneficiaries of the government’s consumption-boosting efforts, given their dominant positions in online retail. Both stocks have shown technical strength in recent sessions, reflecting investor optimism about their potential upside under the new policy measures.

As China continues to navigate a fragile economic environment, all eyes will be on upcoming monetary policy decisions and additional government measures aimed at propping up growth. The next key event will be China’s loan prime rate (LPR) decision, where markets will be watching closely for any signs of monetary easing. Meanwhile, President Xi Jinping’s upcoming meetings with foreign CEOs later this month at the China Development Forum could provide further clarity on Beijing’s long-term economic strategy.

While the data suggests some resilience in China’s economy, risks remain. The ongoing property sector struggles, rising joblessness, and the unpredictable nature of U.S. trade policy continue to cloud the outlook. Nevertheless, with Beijing doubling down on domestic demand as a growth driver, and major consumer-facing firms like Alibaba and JD.com well-positioned to benefit, investors will be watching for signs of sustained recovery in the months ahead.