China's Stimulus Strategy: Can Targeted Interventions Sustain Growth Amid U.S. Trade Tensions?

China's 2025 fiscal and monetary stimulus measures have been a lifeline for an economy grappling with trade tensions, a collapsing property sector, and weak domestic consumption. While the government's targeted interventions—ranging from bond swaps to consumer tax cuts—have stabilized growth, the question remains: Can these measures sustain long-term resilience in a world where U.S. policy shifts and global demand fluctuations loom large?

The Stimulus Playbook: Scale and Scope

Between 2023 and 2025, China deployed a multi-pronged strategy to prop up growth. The People's Bank of China (PBOC) introduced novel tools like the Securities, Fund, and Insurance Swap Facility (SFISF), injecting RMB 105 billion in early 2025 alone, with a potential total of RMB 1.5 trillion. Meanwhile, fiscal measures included a 4% of GDP budget deficit target, RMB 3 trillion in special treasury bonds, and RMB 500 billion in consumer financing for large-ticket purchases. These efforts were complemented by rate cuts, reserve ratio reductions, and export tax rebates to offset U.S. tariffs.

The results? In H1 2025, GDP grew 5.3% year-on-year, with exports surging 7.2% as demand from ASEAN and Europe offset U.S. trade risks. However, retail sales rose only 5.0%, underscoring persistent consumer caution. Producer prices fell 2.8%, and the debt-to-GDP ratio hit 309% by June 2025, with local government debt at 93% of GDP.

Exports: A Double-Edged Sword

China's export resilience has been a bright spot, driven by diversification into markets like Southeast Asia and a surge in high-value goods (e.g., mechanical and electrical products, up 9.5% in H1 2025). reveals a 9.6% year-on-year increase in H1 2025, with front-loaded shipments ahead of potential U.S. tariff hikes. Yet, this growth is fragile. A re-elected Donald Trump could reimpose tariffs, and global demand for electronics and machinery may wane as developed economies slow.

Domestic Consumption: The Elusive Fix

Despite tax cuts and wage injections (e.g., RMB 12-20 billion in government worker raises), consumption remains weak. China's consumption rate at 56.6% in 2024 lags far behind developed economies. Sheng Songcheng of CEIBS argues that structural reforms—such as redistributing state-owned capital to pensions and liberalizing services sectors—are critical. “Without addressing income inequality and overreliance on savings, stimulus will only delay the inevitable,” he warns.

Sustainability Risks: Debt and Structural Weaknesses

China's debt-driven model is under scrutiny. Total social financing reached RMB 430.2 trillion by June 2025, with debt-to-GDP ratios rivaling Japan's. Local governments, already strained by opaque financing vehicles (LGFVs), face tighter borrowing rules. highlights a 77.4 percentage-point surge from 2014 to 2024, driven by non-productive infrastructure and property investments.

The property sector's collapse—investment down 11.2% year-on-year—exacerbates risks. While targeted support for developers has stabilized some markets, the sector's contribution to GDP (25%) means a full recovery is unlikely without deeper reforms.

Investment Implications: Navigating the Stimulus Cycle

For investors, the key lies in balancing optimism with caution. Sectors aligned with government priorities—green energy, 5G, and AI—offer growth potential. The Technology Investment Facility (RMB 300 billion) and green energy allocations (RMB 300 billion) signal long-term bets on innovation. could highlight opportunities in companies like Huawei or BYD.

However, overleveraged areas—such as local government-linked infrastructure projects—pose risks. Investors should also monitor U.S. trade policy shifts, which could disrupt export-dependent sectors.

Conclusion: A Delicate Balancing Act

China's 2025 stimulus has bought time, but it is not a panacea. The government's focus on targeted interventions and capital market reforms suggests a shift toward sustainable growth, yet structural challenges in consumption, debt, and property remain. For now, the economy's resilience hinges on its ability to adapt to external shocks while implementing reforms that unlock domestic demand. Investors should prioritize sectors aligned with long-term strategic goals while hedging against geopolitical and fiscal risks.