Despite US tariff pressure, financial institutions remain optimistic about China's economic outlook

Morgan Stanley and other financial institutions are quite optimistic about China's economic prospects this year, despite difficulties from US tariff policies.

Beijing pledges to open more economic sectors to international investors. (Source: THX)

Following moves by HSBC and the Organization for Economic Cooperation and Development (OECD) last week, Morgan Stanley is the latest institution to raise its 2025 economic growth forecast for China following upbeat signals about domestic economic activities at the beginning of the year, despite the world's second-largest economy being hit by new US tariffs.

Accordingly, Morgan Stanley adjusted up its forecast for China's economic growth by 50 basis points to 4.5% on March 24, after the OECD raised its 2025 economic growth forecast by 0.1 percentage point to 4.8%.

The decision to revise down was due to "stronger-than-expected" initial signs of growth, coupled with growth in capital spending in the Northeast Asian country, said Robin Xing, Morgan Stanley's chief China economist.

The bank said that in the first quarter of 2025, the Chinese economy showed "strong performance data" despite the extended Lunar New Year holiday, and expressed expectations for "a higher contribution from capital formation to GDP, supported by emerging industries amid the application of artificial intelligence (AI) and public financial support".

Although forecasts have been adjusted upward by many banks and international organizations, some places still give forecasts lower than Beijing's target for 2025 of 5%.

"The government's increased determination to support growth, a stronger and more urgent policy response to boost domestic consumption and better-than-expected activity data are the main reasons why we are more optimistic about the growth of the world's second-largest economy," HSBC said, raising its forecast by 0.3 percentage points to 4.8% on March 18.

The Bank's representative added: "Implementing policies and deploying plans to promote private sector confidence and support technology and innovation will help complete the growth process."

Speaking at the China Development Summit on March 23, Premier Li Qiang said Beijing was prepared for “unexpected shocks,” mainly from external sources, and pledged to open more sectors of its economy to international investors. At the same time, the world’s second-largest economy will also introduce new policies necessary to ensure the economy operates smoothly.

Economic stimulus measures rolled out by the government last year have taken effect since the start of this year, along with pledges to support China's private sector in developing new technologies such as AI.

The country's policymakers are also looking to tackle weak consumption, a protracted property crisis, employment problems, and rising tariffs.

Liu Qiao, dean of Peking University's Guanghua School of Management, stressed at a conference last week that China is "on the road to recovery," despite trade tensions with the United States.

Still, Morgan Stanley, HSBC and the OECD all estimate that the Northeast Asian nation's economic growth in 2026 will be lower than this year, due to the impact of Washington's tariffs.

According to Morgan Stanley, the latest 2025 tariffs have so far created a "direct drag" of 0.6 percentage points on China's GDP growth in 2025, despite the country reducing its "direct trade relationship with the US" and "restructuring its supply chains".

Morgan Stanley and other financial institutions are quite optimistic about China's economic prospects this year, despite difficulties from US tariff policies.

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