Analysts are calling for China to expand fiscal stimulus in the second half of 2025 to boost domestic demand, after the economy grew stronger-than-expected in the first six months—fueled by resilient industrial production and exports even amid persistent trade tensions with the United States.

Industrial production remained a key growth driver, with value-added output from major industrial firms rising faster than GDP growth. Meanwhile, exports showed resilience, with the second quarter export growth averaging 6.2 percent, up from 5.1 percent in the first quarter, as Chinese firms adapted to US tariff pressures, according to a report by the China Finance 40 Forum (CF40) released on Monday.

Domestic consumption also improved, with retail sales growth accelerating, partly due to government-backed "trade-in" programs.

Experts emphasized in the report that expanding domestic demand remains the priority in the second half of the year, particularly through fiscal measures that support consumption, infrastructure, and housing market stability.

The uncertainties related to US tariffs may potentially dampen exports, while fiscal constraints could limit China's ability to sustain high spending. Government debt issuance surged to 6.3 trillion yuan ($880 billion) in January-May, far exceeding the 2.5 trillion yuan issued in the same period in 2024. However, issuance capacity for the rest of the year is projected at 7.6 trillion yuan, below last year's levels.

To counter these headwinds, Zhang Bin, a CF40 non-resident senior fellow and deputy director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, outlined four key policy recommendations.

First, he proposes expanding fiscal spending through the issuance of an additional 2.3 trillion yuan ($320 billion) in government bonds to meet full-year budget growth targets. This measure would help maintain the necessary fiscal support for economic growth.

Second, Zhang recommends boosting public investment in urban renewal projects. These initiatives could serve as a new growth driver as manufacturing investment shows signs of slowing, helping to sustain domestic demand.

Third, the analyst suggests further cuts to policy interest rates to reduce real borrowing costs and stimulate private-sector demand.

Finally, Zhang advocates a dual-track approach to support the property market. This would involve both demand-side measures like easing home-buying restrictions and supply-side reforms including accelerated developer debt restructuring, aiming to bring stability to this crucial sector.