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Standard Bank Group
Inside China 28 April 2026

Complacency under fire

Jeremy Stevens

  • The veneer of Q1:26 masks a deterioration in March. Real GDP was 5.0%, rising from 4.5% in late 2025, but the m/m profile weakened sharply during March. Worse still, SBR's China Activity Index, a PCA-based proxy tracking consumption, production, trade and credit, continued its slide to just 3.3% in March—the lowest since January 2023—suggesting, at the very least, that headline growth is running ahead of activity on the ground.
  • Investment has been front-loaded but it is physically hollow. The infrastructure mix reveals a decisive pivot towards “new quality productive forces”: pipeline transport investment nearly doubled, air transport surged 43%, waterway transport jumped 34%, and cargo-handling rose 30%, even as highway expansion slowed to 2.9% and water conservancy contracted 5.5%. Notably, cement output collapsed 22% (and 40% versus March 2023), while weekly cumulate asphalt sales have fallen to roughly half last year's level in the past six weeks.
  • Industry is bifurcated. Value-added industrial output grew 6.1%, driven disproportionately by high-tech manufacturing (up 13%) and equipment manufacturing (up 9%). Dynamism seems to be ring-fenced to either prioritised sectors or export absorption, rather than broad-based improvements in business sentiment.
  • The external account is still sturdy, but growth there is also moderating.
  • Anaemic consumption growth is steadfast.
  • Credit and fiscal transmission are strained. New social financing in Q1 reached CNY14.83 trillion, CNY354 billion below the year-earlier level, with March alone falling CNY669 billion short. Government bond issuance and renminbi loans both decelerated.
  • Prices were healing before the war, but the drivers have shifted. The producer-price index turned positive (0.5%) in March for the first time after 40 consecutive months of decline – but this pre-war baseline is now being redrawn by a cost-push shock.
  • The Iran war delivers a stagflation ambush. Strait of Hormuz closures have already slashed crude imports from Saudi Arabia, Iraq and Kuwait by 30-60%, though aggregate imports held up thanks to pre-positioning and Russian/Brazilian offsets. Refining margins have been annihilated, and independent refineries are cutting supply. The shock cascades through aluminium smelting, fertiliser, plastics, packaging, helium (for semiconductor lithography) and elsewhere.
  • The policy bet on endogenous stabilisation—resting on household balance-sheet repair, equity-market wealth effects and normalising risk appetite—now faces a narrower margin for error.
  • A diplomatic circuit-breaker is possible. The Iran war has placed enormous pressure on the Trump administration through elevated domestic fuel prices and military strain, creating an incentive to de-escalate tensions with Beijing ahead of the May meeting. Expectations for a modestly positive outcome in May are justified.
 

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