Theme of the Day: China’s first-half growth remains on track

China's GDP growth moderated slightly to 5.2% YoY in Q2, down from 5.4% in Q1, and once again outperformed the consensus. Through H125, GDP has expanded by 5.3% YoY, keeping China on track to achieve this year's "around 5%" growth target. Manufacturing has thus far remained resilient in the YTD, defying expectations for a slowdown.The biggest beat in Jun monthly data was in the value added of industry, which surprisingly bounced back to a three-month high of 6.8% YoY, up from 5.8% in May, bucking expectations for a further slowdown. Jun industrial production benefited from a pickup of manufacturing (7.4%), in particular hi-tech manufacturing (9.7%), which has been an outperformer amid China's transition up the value-added ladder. Through H125, value added of industry has grown 6.4% YoY, faster than the 5.8% pace seen in 2024.Heightened caution led to sharper-than-expected decline in fixed-asset investment. In H125, FAI slumped to 2.8% YoY, down from 3.7% YoY YTD in May. This marked the lowest growth rate since the pandemic-impacted 2020. This slowdown was also significantly steeper than the slight downtick markets had been expecting. Note that FAI data is given in YTD, indicating Jun's slowdown was even more significant. By sector, manufacturing FAI maintained the highest growth rate at 7.5% YoY YTD, led by investments in auto (22.2%) and rail, ship, and aeroplane manufacturing (27.3%). Uncertainty surrounding tariffs and geopolitical developments continues to weigh on FAI, as companies hold off on making new investments until there’s more clarity.Retail sales data slumped as the peak of the trade-in policy impact may be near. Retail sales growth slowed to 4.8% YoY in Jun, down from 6.4% in May. This growth came in lower than forecasts, after several months of outperformance. Nonetheless, retail sales have grown by 5.0% YoY YTD through H125, broadly on track with expectations. Previous months’ data showed a clear impact of China's trade-in policy on supporting consumption.Property price slump continued to worsen in Jun. China's 70-city sample of property prices showed further signs of deterioration in Jun. Overall, new home prices fell by -0.27% month on month, while used home prices fell by -0.61% MoM. Both saw steeper declines for the third consecutive month. With prices continuing to show signs of deterioration, there is a growing possibility we’ll see more support measures roll out in the coming weeks or months.The strength of the economy through H125 is certainly encouraging compared to the very downbeat expectations at the start of the year. Trade data benefited from frontloading in Q1 but generally held up better than expected in H125 as a whole. As a result, industrial production has outperformed. Nonetheless, H225 could prove to be more challenging. The tariff uncertainty will remain an overhang, with the next key deadlines coming up soon in Aug. As such, momentum could moderate in H225. However, the strength of H125 should nonetheless keep China on track to achieve its full year target of "around 5%" growth.