China’s Economic Crossroads: Will Stimulus Propel Growth or Invite a Stall?

China Outlook: Stimulus or Stall? China’s Next Moves Loom Over Markets and Growth

By Bob Mason | Published: August 19, 2025, 01:07 GMT

Global markets and investors keep a close eye on China’s path. Key questions grow as Beijing may use new stimulus measures to keep growth alive or allow a stall that could harm markets. Trade issues mix with soft economic signs and cautious investor moods. These factors add doubt for the world’s second-largest economy.

Trade Truce Extended Yet Fragile

On August 11, the United States and China extended a break in their trade war for 90 days. This choice stops a full fight for now. Both sides stay quiet on deep trade talks or changes in tariff ideas. Tariffs remain on Chinese goods at about 55% when sent to the U.S. Meanwhile, U.S. goods face around 10% when entering China.

This state forms a calm that is weak. Experts see risk if each side shifts its position soon.

Rare Earth Exports Signal Underlying Tensions

China now holds back on rare earth exports. These metals help many tech and defense jobs run. Beijing warns firms not to stockpile these resources. It cuts export amounts to stop foreign hoarding.

The China Beige Book shows that China uses rare earth exports to hold more power. This step shows Beijing wants to keep its bargaining strength.

Declining Shipping Volumes Reflect Slowing Trade

Data from shipments marks a drop in trade between China and the U.S. The Kobeissi Letter tells us that container ship trips from China reached a low in 15 days, the lowest in two years. Shipping numbers fell nearly 40% last month. This drop happens even with the tariff break, which shows tariffs still slow trade movements.

Economic Indicators Signal Slowing Growth

China had a strong second quarter. Still, in July, signs of slowing appear. Industrial output rose 5.7% from last year, down from 6.8% in June. The S&P Global China General Manufacturing PMI fell to 49.4, below the neutral mark of 50. This shift shows shrinking output and fewer new export orders.

Retail sales only grew 3.7% in July, down from 4.8% in June. Policy actions aimed to boost local spending, yet a weak housing market keeps consumer mood low. Rising costs in factories force firms to cut wages and staff. These trends suggest challenges that may test Beijing’s goal of a 5% GDP rise in 2025. Stock Markets Show Tentative Gains Amid Fragile Confidence

Mainland China’s stock markets have made small gains. The CSI 300 peaked at a 10‑month high, and the Shanghai Composite reached a 10‑year top in mid‑August. Both still trail all‑time highs, which points to cautious hope.

By contrast, U.S. markets kept rising. The Nasdaq Composite and S&P 500 set record marks, helped by strong July retail data. Canadian economist Hao Hong says that a rising market is needed to lift household trust here—a point that Beijing knows well.

Divergent Views on China’s Economic Path

Economists have split opinions on China’s near‑term future. Alicia Garcia Herrero, Chief Economist for Asia Pacific at Natixis, notes that a strong first half makes a 5% GDP target seem possible. To reach the target, the economy must average nearly 4.7% growth in the rest of the year. This growth looks possible with a fiscal push and a bit of softer money policy.

Yet, Garcia Herrero warns that current gains may not hold without stronger actions. The service sector must get a push as well. Even with trade risks and falling prices, the Chinese government can use policy tools to back growth if needed. Natixis now expects GDP to reach 5.0% in 2025 and 4.5% in 2026. Strong Equity Rally Despite Uncertainty

Amid this uncertain time, stocks in China and Hong Kong did well in 2025:

• CSI 300: +4.02% in August, +7.74% year‑to‑date (YTD).
• Shanghai Composite: +4.33% in August, +11.23% YTD.
• Hang Seng Index: +25.51% YTD, beating both Mainland markets and the Nasdaq (+11.97% YTD).

Investors watch Beijing’s next steps. A delay in a fiscal boost or softer economic numbers could end the current stock market rise.

Conclusion

China stands at a key point where its choices on stimulus and trade shape its future. The break in a trade fight stops a clash for now, yet problems persist with rare earth rules and tariffs.

Economic numbers show signs of slower growth. The policy moves in the coming months will decide if growth and market trust can stay on track. For global markets, China’s course stays a major factor amid ongoing worldwide challenges.

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