China just clocked a 5.4% GDP growth in Q1, topping expectations. But look under the hood, and almost 40% of that growth came from net exports—the biggest slice in over a decade. That wouldn't be a red flag in normal times. But with the U.S. now hitting Chinese goods with effective tariffs of 115%, and global demand wobbling, this isn't a celebration—it's a warning. Bloomberg Economics says those tariffs could shave 2–2.5 points off China's GDP this year, cutting their full-year growth forecast to 4.2%.
At the same time, China's domestic economy looks wobbly. Fiscal data shows tax revenues fell 3.5% in Q1—while land sales, a vital funding source for local governments, dropped another 16%. To cushion the blow from tariffs, Beijing has boosted export tax rebates, up 14% YoY. But that also means more fiscal strain. Net result? The government's two major budgets saw total income shrink 2.6%—and this is before the full impact of new tariffs hits.
And here's the kicker: even with all the external pressure, infrastructure spending is actually falling—down 4.2% YoY, marking the first drop in two years. That's not what investors want to see when stimulus is supposed to offset trade shocks. Bloomberg Economics expects Beijing to lean harder into its 2025 budget, but if tensions escalate further, even that might not be enough. For global investors, especially those tied to exporters or infrastructure players, China's growth story is entering a much more fragile chapter.
