China's GDP rose 5.2% year-on-year in Q2 2025, slightly down from 5.3% in H1, as tariff-related disruptions weighed on growth momentum. For the first time in a year, main growth driver shifted from the industry back to the services.
- Tertiary sector led with +5.7%, outperforming GDP by 0.5 pts, driven by consumer goods 'trade-in' subsidies, holiday spending, and seasonal demand. This bolstered up power consumption in the services sector- up 7.1% YoY in H1 and surpassing growth in both the primary and secondary sectors.
- Secondary sector lagged at +4.8%, weighed down by U.S.-China tariff tensions in April–May, sluggish investment and weakness in real estate and infrastructure.
Structural Split in Energy & Chemical Demand
- High-End Manufacturing Drives Structural Upgrades
H1 saw strong gains of industrial value added in emerging industries: equipment manufacturing grew +10.2%, high-tech +9.5%, with standout growth in rail, shipbuilding, aerospace (+16.6%) and electrical machinery (+12.2%). This drove up demand for advanced materials, specialty chemicals, and green electricity. Renewable power generation rose 11.6% YoY, with solar up 19.5%, wind +39%, while coal power down 1.4%.
- Traditional Manufacturing Dragged by Weak Demand
The weak property market and slower infrastructure investment have dampened demand and pricing for steel and building materials. Logistics and industrial activity weakened, with Q2 average daily mileage for heavy-duty trucks (HDTs) down 1.6% YoY. Power use in the secondary industry, cement mixer activity, machinery utilization, and rebar consumption all remained subdued.
Refined oil demand is under pressure from alternative fuels and transport mode shifts. In H1 2025, China's total freight turnover rose 5.1% YoY, but highway freight gained just 4%, compared to 6.7% for waterway and 17.9% for air. Diesel demand was notably weaker: Q2 average daily HDT mileage fell 8% YoY due to gas and NEV substitution.
For gasoline, H1 passenger turnover rose 4.9% YoY, but highway transport was up only 1.5%, with its share dropping from 15.2% to 14.7%. In contrast, rail and air posted 2.8% and 9.0% gains, respectively. EV penetration accelerated, with the share of EVs in passenger vehicle retail sales reaching a near-record 53.3% in June.
- Oil Product Demand Falls, But Imports Rise
H1 gasoline and diesel demand fell 3.5% and 8.8% YoY, respectively, and crude throughput declined 2.7%. Despite this, China's crude imports rose 1.4% YoY (June +7.4%), likely as China built low-cost reserves amid soft global demand and tariff-related risks.
Outlook for H2 2025
- Key Risks:
1) Continued uncertainty around tariffs and external demand may limit export gains, especially after H1 front-loading.
2) Persistent weakness in domestic demand and deflation expectations is projected to continue weighing on the property sector.
3) The effect of the "trade-in" stimulus may diminish, with consumption constrained by labor market and income concerns.
- Potential Upsides:
- Anti-involution reforms could support margins. By end-June, the average days sales outstanding (DSO) for industrial enterprises above designated size shortened to 69.8 days (vs 70.5 days in May) - the lowest since February - indicating faster payment collection.
- On the investment front, nearly half of the new special-purpose and central government bond quotas remain unissued, supporting infrastructure investment growth.
- Exports to Latin America, ASEAN, Global South, and the EU offer upside, backed by resilient high-tech goods.
- Property support remains a priority. The mid-July Central Urban Work Conference emphasized new urbanization and urban renewal, likely accelerating financing and destocking in the sector.
Our full report offers a deep dive into China's Q2 macro trends and energy-market implications, including:
- Production, consumption, investment, and trade analysis
- Industry–macro linkages via high-frequency data
- Structural shifts in energy and chemical demand
The above content is the major conclusions and highlights extracted from China (Energy Transition) Policy Perspective. To get detailed full text, send an email to glconsulting@mysteel.com.
