China's economy may have sprinted out of the gate in Q1, but the real race is just beginning. GDP grew 5.4% year-over-year, comfortably beating expectations on the back of aggressive consumer subsidies and a rush of exports shipped ahead of new U.S. tariffs. March retail sales and industrial production both surged—boosted by trade-in programs for cars, phones, and appliances. But make no mistake: the momentum looks front-loaded. Economists from Goldman Sachs, UBS, Citi, and SocGen are already trimming full-year growth forecasts to sub-4% territory, citing cracks starting to show beneath the surface.
Export data is cooling. Factory orders are slowing. And the effects of U.S. trade levies are only just beginning to bite. Hong Kong-listed Chinese stocks dropped as much as 3.3% following the GDP release, signaling investor skepticism. The yuan stayed flat, but government bond yields dipped, reflecting growing expectations that stimulus is coming. Economists are eyeing everything from interest rate cuts to trillions in fiscal spending, and signs point to the Politburo's late-April meeting as the next catalyst. The big question: Will policymakers act now—or wait for growth to hit a wall?
Premier Li Qiang is already laying the groundwork. This week, he publicly urged businesses to double down on domestic markets and diversify away from U.S.-bound exports. Beijing is also ramping up services sector support, rolling out 48 measures to spark spending in dining, tourism, and healthcare. But deflation remains a drag, and real estate investment is still falling. As ANZ's Raymond Yeung puts it bluntly: “China can only count on domestic consumption. Whether that's enough depends entirely on the size and speed of the next stimulus wave.”
