China's Policy Gamble: Balancing Domestic Growth and Trade Challenges

China's retail sales gained momentum in early 2025, showing signs of economic resilience amid increasing U.S. trade pressure and rising unemployment. Policymakers focus on boosting domestic consumption to counter export challenges, with support measures in place despite looming fiscal uncertainties.

China witnessed an uptick in retail sales during January-February 2025, signaling stronger domestic consumption amidst escalating U.S. trade tensions and job losses. The government prioritizes expanding local demand to cushion against tariffs impacting exports—a strategy deemed crucial for sustaining economic stability.

Top Chinese economists express concern over the sustainability of this growth, citing fragile domestic conditions and a protracted real estate crisis. Analysts highlight the need for continued fiscal and monetary stimuli to ensure economic recovery, acknowledging risks posed by high U.S. tariffs on exports.

In efforts to reinforce consumer activity, authorities have committed substantial funds to a revised trade-in scheme for consumer goods, while introducing new income-boosting and childcare subsidies. Despite these strategies, increased challenges could test the resilience of China's economic framework throughout 2025.

(With inputs from agencies.)