China GDP Holds at 5.2%, but Retail and Trade Risks Raise Stimulus Bets

Meanwhile, Chinese exports to ASEAN countries rose 17% (May: +15%), helping offset falling US exports. However, President Trump’s latest tariff announcements could impact China’s trade terms.

Vietnam agreed to a 40% tariff on transshipments to the US, while Indonesia faces a 32% levy, effective August 1. The tariffs likely target China’s efforts to reroute exports, potentially impacting China’s manufacturing sector and company profits. Weaker profits may further impact labor market conditions, complicating Beijing’s efforts to bolster domestic demand.

David Scutt, market analyst at Stone X, underscored the potential impact of higher tariffs on demand, stating:

“China still making a whole lot of stuff that will need to be sent somewhere given persistent weakness in domestic demand. Hardly seems sustainable.”

Retail and Deflation Concerns

While the manufacturing strengthened, deflation could accelerate in the near term. Consumer prices fell 0.1% MoM in June, and producers reported sharper declines than in May, reflecting increasing competition. June’s weaker retail sales may fuel deflationary pressures, further impacting company profits. Corporate profits slid 9.1% YoY in May. June’s private sector PMIs highlighted a profit margin squeeze as firms cut selling prices to stay competitive.

Combined with tariff-related headwinds, the data may push Beijing to announce further stimulus to stabilize demand and counter external shocks.

Hang Seng Index Eases Back from Morning Highs

Investors reacted to today’s Chinese data, which raised concerns about tariffs, domestic consumption, and Beijing’s 5% GDP target.

The Hang Seng Index was up 0.37% to 24,293 in the morning session, down from an early high of 24,556. However, Mainland China’s markets posted mixed performances. The CSI 300 gained 0.22%, while the Shanghai Composite Index fell 0.36%. Hopes for more stimulus from Beijing cushioned the losses for Shanghai Composite Index, while bolstering demand for Hang Seng Index and CSI 300-listed stocks.