China reported GDP growth of 5.2 percent for Q2 2025 and 5.3 percent for the first half of 2025, according to a report released by China's National Bureau of Statistics (NBS) today. Growth in production, however, is outpacing demand, driving prices down and pushing surplus products into the export market. Nominal GDP growth could be much slower than these "real" GDP since the calculation tends to exaggerate the growth rate when prices are falling.
While the NBS report insisted that government policies are working, it also acknowledged that "domestic demand is still insufficient."
Many prices declined as industries pumped out products faster than they could be sold, resulting in downward pressure on prices. The June 2025 CPI was down just 0.1% from a year earlier, but the "transportation and communications" component was down 2.8 percent in H1 2025, and it was down 3.7 percent year-on-year in June.
A clearer indication of excess production is the producer price index for products leaving factories. The producer price index was down 2.8 percent from a year earlier for the first half of 2025 and down 3.6 percent year-on-year in June. The producer price for industrial food products was down 1.5 percent for H1 2025, and down 2 percent in June.
The ex-factory producer price index has consistently shown month-to-month declines since 2022. After a burst of inflation during February-May 2022, the producer price index has stayed the same or fallen in 31 of 37 months since then. Producer prices fell each month in 2025 so far and in 10 months of 2024. Suspiciously, the producer price index has fallen by the same 0.4 percent each month from March to June this year.
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| Monthly change in ex-factory producer price index from China National Bureau of Statistics. |
Note that China reports its GDP in "constant dollars," which may be misleading when prices are falling. Adjusting nominal or "current dollar" GDP with a price index less than 100 to calculate the "real" or "constant dollar" growth GDP (when prices are falling) would yield a "real" GDP growth that exceeds the current dollar or "nominal" GDP growth rate. The 5-percent growth in "real" GDP reported by NBS calculated with a price index showing a 2.8 percent decline in prices (reflecting the producer price index) implies nominal GDP growth might have been just 2.2 percent. (If they used the CPI to adjust it would make little difference, but NBS does not reveal which price indexes it uses.)
With prices falling and the domestic market unable to absorb the output, exports have been rising. According to the NBS report, exports during the first half of 2025 were up 7.2 percent from a year earlier and imports were down 2.7 percent.
Agriculture, forestry and fishing GDP grew 3.9 percent in the first half of 2025 from a year earlier. However, physical output of the two main components of agriculture produced in the first half of the year grew at slower rates. Production of meat increased 2.8 percent, while output of summer grains decreased 0.1 percent from a year earlier. Hog prices have fallen about 30 percent since reaching a peak last August, indicating excess production capacity. Yet NBS reported that the hog inventory is now up 2.2 percent from a year ago.
Most agricultural prices have also been falling. The overall index of prices received by agricultural producers was down 1.1 percent year-on-year for H1 2025. Most agricultural commodities had larger changes in prices. The producer price for grain was down 4.3 percent, oilseeds were down 4 percent, vegetables were down 6 percent, wood was down 3.9 percent, and livestock prices were down 2 percent. Only fruit (up 9 percent) and hogs (up 1.3 percent) had increases in prices in H1 2025 (in Q2, however, hog prices were down year-on-year).
Like industrial commodities, China's agricultural prices have also had an extended run of quarterly declines. Grain prices have registered year-on-year declines 6 quarters in a row--a main reason for the cratering of grain imports over the past year. Vegetable prices have fallen in all but 2 quarters since Q4 2022. Livestock prices declined during the recovery of pork production in 2021 and during 2023. Livestock prices were down year-on-year in 6 of 9 quarters since Q3 2023. In Q2 2025 farm prices of grain were down 1.7 percent, vegetables were down 4.6 percent, and livestock prices were down 3.1 percent from year-earlier levels.
The June 2025 Chinese CPI report showed declines in consumer prices of grains (-1.3 percent), edible oils (-2 percent), fresh vegetables (-5.3 percent), meat (-.4 percent), milk (-1.4 percent), eggs (-2.5 percent), and alcohol (-2 percent) for the first half of 2025. Fruit (up 2.7 percent), cigarettes (up 0.3 percent) and seafood (up 0.8 percent) were components of food, alcohol and tobacco that had higher prices in the first half of 2025.
China is a net importer of agricultural products. Customs data show that China's agricultural imports during the first half of 2025 were down 10.1 percent from a year earlier, and agricultural exports were up 1.8 percent.
The NBS report says that the rural migrant labor force grew 0.7 percent to 191.39 million people in Q2 2025. Monthly earnings for rural migrants averaged RMB 4971 (about US$ 690) from an average of 48 hours. Monthly earnings for migrants grew only 3 percent from a year ago, slower than the average 5.7 percent growth in wage income. The report also says the average unemployment rate was 4.8 percent for laborers with an agricultural household registration (i.e. rural migrant workers). These figures suggest that China has nearly 9.2 million unemployed rural migrants roaming the country.
In the first half of 2025 per capita food spending averaged RMB 4355, up 3.3 percent. This was slower than the 5.3-percent growth in total household expenditures. Food averaged 30.4% of household expenditure.
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