AsianFin — Nomura Securities Chief China Economist Lu Ting has warned of an economic slowdown to 4% in the second half of this year from 5.1% in the first half, due to weakening export momentum, a prolonged property slump and fading policy stimulus.
In a report released on July 9, Lu sounded an alarm about a “cliff-like” drop in market demand across sectors in the second half, echoing patterns seen in recent years. Many Chinese exporters front-loaded shipments in the first six months to sidestep U.S.tariff risks, but the surge is expected to cease, leaving exports in the remainder of the year with weaker momentum.
Meanwhile, the real-estate malaise deepens. The property sector, in its fifth year of contraction, remains in the doldrums. Home starts dropped about 22% year over year in the January-May period, while home sales and prices sag, worsening local demand, employment and government revenue woes. Most cities acoss China are still mired in the real estate crisis, with both new homes and existing homes experiencing falling sales.
Consumption incentives like trade-in programs are losing punch. Their projected effect on retail growth shrinks from 0.9 percentage point in the first half to 0.4 percentage point in the second half. Deflationary pressures persisted. Corporate profits are squeezed by ongoing negative producer purchasing indicator (PPI), dampening companies’ appetite for investments.
Lu noted that China's robust export growth of about 45% year over year in the recent years had previously offset real-estate weakness, characterized by a 50% contraction over a period of four to five years. However, with both sectors now decelerating simultaneously, China may face compounded headwinds in coming quarters.
At the same time, a tightened government spending directive issued in May, which is more austere than a 2013 equivalent, is set to further curb demand in mid-to-high-end dining and alcohol sales. Nomura forecasts that foodservice retail growth is likely to slow from 5% in the first half to just 1% in the second half, shaving roughly 0.5 percentage off overall retail growth.
Nomura Securities offered a five-point policy framework to counteract these challenges in the research report.
First, clean up real-estate debt. Facilitate bankruptcy for weak developers while supporting systemically important ones. Ensure pre-sold homes are delivered or buyers compensated with the centralized government fiscal support.
Second, increase pensions for farmers from the current 243 yuan per month to 400-500 yuan, which will strengthen the income of 170 million seniors in rural China and reduce burdens on 300 million migrant workers.
Third, revamp fiscal arrangements between the central government and provincial/municipal governments. Give local governments more sources of funds to reduce their dependence on land-sale revenue.
Fourth, advance industrial upgrading to improve efficiency and stimulate domestic demand.
Fifth, stabilize market expectations. Employ fiscal and social welfare reforms to improve investor and consumer confidence while protecting private-sector entrepreneurs.
Nomura maintains a cautiously pessimistic view on economic growth in the second half of 2025 unless policy efforts intensify. However, it also highlights China’s underlying resilience. If structural reforms are implemented effectively, the economy may still sustain moderate growth despite external pressur
