Market Sentiment Tracker: How will China’s economy behave in 2H 2025?

China’s economic position in the second half of 2025 can be assessed clearly through four key indicators that Ray Dalio uses to evaluate sovereign financial health: the interest-to-revenue ratio, the debt-to-revenue ratio, the pace of debt growth relative to revenue growth, and the degree of foreign borrowing dependence. Based on current data, China remains within a manageable range on all four, but the underlying momentum is becoming more strained.

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The interest burden on government finances is still low by global standards. Interest payments represent just 3.4% of central government revenue, well below the 15–20% range now projected for the U.S. This indicates that debt servicing is not yet crowding out fiscal space. On total debt relative to revenue, China stands at roughly 1.4× (or 140%), based on the most recent available figures. While this is materially lower than the U.S. ratio of 7.45×, it has been rising steadily, driven by a widening gap between debt accumulation and sluggish revenue growth.

That imbalance is the most visible red flag. Despite GDP growth of about 5%, fiscal revenue is projected to be essentially flat in 2025—up just 0.1% year-on-year. This suggests that the government is relying more heavily on credit and financing mechanisms to sustain activity while the tax base and other revenue channels stall. It also underscores the limits of traditional stimulus when corporate profitability and household income remain soft.

China’s sovereign borrowing continues to be overwhelmingly domestic. Most of the central and local government debt is denominated in renminbi, and external exposure remains minimal. This domestic orientation gives the government more control and limits vulnerability to external funding shocks. However, the heavy use of local government financing vehicles (LGFVs) complicates transparency and contributes to off-balance-sheet risks.

Looking at more recent activity, there are signs of renewed credit flow . New yuan loans rose sharply in June to 2.24 trillion yuan, and Total Social Financing increased to 3.65 trillion yuan—both indicating a policy-driven push to support demand. Money supply growth (M2) also edged up to 8.1% year-on-year. But real economy signals remain uneven. Manufacturing PMI from the official data fell to 49.7 in June, pointing to contraction, while the Caixin PMI, which captures more private sector dynamics, inched up to 50.4. Meanwhile, cement production—an indicator of construction and infrastructure momentum—fell 5% year-on-year, reinforcing the sense that property and heavy investment activity is still cooling.

Oil demand China’s oil demand in the second half of 2025 is expected to remain firm but plateauing, shaped by three key forces: industrial and transport fuel use, ongoing strategic and commercial stockpiling, and policy-driven efficiency gains.

On the consumption side, demand is being supported by moderate economic growth and steady mobility. Freight activity and road transport remain resilient, especially in core logistics corridors. Air travel has also recovered to near pre-pandemic levels, contributing to a stable baseline for jet fuel demand. However, industrial fuel use—particularly tied to heavy sectors like construction—remains under pressure. The recent 5% year-on-year drop in cement output in June is one example of weaker energy-intensive activity that will likely persist through the second half, capping upside in diesel demand.

The more dynamic component of China’s oil demand right now is inventory behavior. In Q2 2025 alone, crude stockpiles rose by an estimated 82 million barrels, one of the largest quarterly builds on record. Both strategic petroleum reserve (SPR) and commercial storage facilities remain below full capacity—total storage utilization stands at about 56%—leaving significant room to continue accumulating. With crude prices relatively contained and geopolitical risks elevated, Chinese authorities are expected to continue building inventories through year-end, especially under the legal mandate that now requires state and private firms to maintain minimum reserve levels.

On net, while organic consumption growth is modest and likely to soften slightly in high-emissions sectors, overall demand will be buoyed by sustained stockpiling and baseline transport fuel needs. There is no sharp inflection expected—neither a surge nor a collapse—but rather a continuation of the current trend: stable headline demand, structurally shifting toward security-focused accumulation rather than broad-based consumption growth.