ETFs in Focus as China Exceeds Growth Expectations in Q2

China's economy expanded at a slightly faster-than-expected pace in the second quarter of 2025, surpassing Beijing’s full-year target of 5%. This stronger performance has eased immediate pressure on policymakers to introduce further economic stimulus, as quoted on CNBC.

According to the National Bureau of Statistics (NBS), gross domestic product (GDP) grew by 5.2% in Q2, outpacing the 5.1% forecast by Reuters-polled economists. However, this figure still marked a slowdown from the 5.4% growth recorded in the first quarter.

Policy Outlook: Limited Stimulus Expected for Now

Despite some weak spots, analysts believe China may hold off on introducing additional stimulus measures in the near term, as quoted on CNBC. Some analysts believe that more significant stimulus could be delayed until September, should economic momentum weaken further.

Beijing's earlier stimulus efforts have had a partial effect. Manufacturing activity improved. Exports held up well. Shipments to Southeast Asia rose by 13%, and exports to the European Union increased 6.6%.

Impact of U.S. Tariffs and Trade Developments

In April, U.S. President Donald Trump escalated tariffs on Chinese imports to a steep 145%, prompting Beijing to deploy a round of supportive measures. The two countries reached a truce in May, agreeing to roll back most tariffs.

A follow-up meeting in London in June resulted in a framework agreement, with China committing to faster approval of rare-earth mineral exports, while the United States pledged to ease technology restrictions and relax visa rules for Chinese students. A deadline of August 12 has been set for finalizing a permanent trade agreement.

Economists Call for Stronger Fiscal Action

Despite outward signs of resilience, economists warn of underlying vulnerabilities in the Chinese economy. In a recent report, People’s Bank of China (PBOC) advisor Huang Yiping and co-authors urged the government to introduce up to 1.5 trillion yuan in fiscal stimulus to bolster household spending and counter the effects of U.S. tariffs.

ETFs in Focus

China’s economy appears to be on track to meet its 5% growth target for 2025, supported by exports and selective stimulus. However, weaker domestic demand, a struggling real estate sector, and global uncertainties are negatives.

Against this backdrop, investors can keep a track of China-based exchange-traded funds (ETFs) like iShares MSCI China ETF MCHI, KraneShares CSI China Internet ETF KWEB, iShares China Large-Cap ETF FXI, Xtrackers Harvest CSI 300 China A-Shares ETF ASHR and Invesco China Technology ETF CQQQ.

This article originally published on Zacks Investment Research (zacks.com).

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