20260317-招银国际-China_Economy_Off_to_a_good_start_8页_959kb

China Economy Summary

Core Content

China's economy began 2026 with a mixed performance, showing initial strength in some areas but facing persistent challenges in others. The recovery is attributed to CNY-related consumption, newly allocated fiscal funding, and a surge in exports, yet the sustainability of this growth remains uncertain. The property sector continues to struggle, with declining sales and prices, and durable goods like automobiles are experiencing contraction. Policymakers are expected to implement further monetary and fiscal easing measures to support the economy, especially the property market.

Main Points

Economic Recovery in Early 2026

• Retail Sales: Increased to 4.8% YTD in 2M26, surpassing market expectations. CNY-related consumption, especially in catering, food, and clothing, played a significant role in this rebound.
• FAI (Fixed Asset Investment): Showed a notable rebound to 1.8% YTD in 2M26, driven by infrastructure investment and manufacturing recovery. Property investment contraction eased to -11.1% YTD, while infrastructure and manufacturing investments improved.
• Industrial Output (VAIO): Grew to 6.3% in 2M26, with mining and public utility sectors showing stronger performance. Manufacturing output also picked up, aided by export rebound and policy support.

Challenges and Concerns

• Property Market: Continued to slump, with new commercial building sales down 13.5% YTD in 2M26 and residential sales down 15.9% YTD. Recovery ratios in major cities dropped to 43.6%, while second-hand housing sales in 11 cities saw a modest rebound in January-February but softened again in early March.
• Exports and Imports: Exports of goods saw a strong increase to 6.3% in 2M26, but imports remained weak. The early-year export surge is expected to fade, and the property slump is a major drag on the economy.
• Durable Goods: Auto sales contracted further, with a 7.3% YoY decline in 2M26, attributed to the phasing out of purchase tax subsidies.
• Energy Prices: Rising energy prices may ease deflation by increasing upstream and input costs, but this is more of a cost-push effect and could reduce downstream margins and household purchasing power.

Key Information

Policy Expectations

• Monetary Measures: A 50bp cut in RRR and a 10bp cut in LPR are expected by the end of 2Q26.
• Fiscal Measures: Additional fiscal funding is likely to be allocated to stabilize investment, particularly in property, infrastructure, and manufacturing.
• Direct Inventory Purchases: Still under discussion but unlikely to be implemented before 2H26.

GDP Growth Outlook

• 2025 Growth: 5%
• 2026 Growth: Expected to decline to 4.6%, reflecting the mixed performance of the economy.

Sectoral Performance

• Infrastructure Investment: Rose to 9.8% YTD in 2M26, driven by new fiscal funding.
• Manufacturing Investment: Recovered to 3.1% YTD in 2M26, with AI-related investment expected to boost growth.
• Service Output Index: Increased slightly to 5.2% in 2M26, with strong growth in IT, software, transportation, and dining & lodging sectors.

Summary

The Chinese economy started 2026 with a rebound in retail sales, FAI, and industrial output, supported by CNY-related consumption and export growth. However, the recovery is not self-sustaining due to the ongoing property market slump, contraction in durable goods, and potential headwinds from exports and demand pull-forward. The property sector remains a key focus for policy support, with a combination of monetary and fiscal measures expected. The full-year GDP growth is forecast to decline from 5% in 2025 to 4.6% in 2026. The government is likely to implement further monetary easing, including RRR and LPR cuts, to support the economy. While some sectors like infrastructure and manufacturing are showing signs of recovery, others like auto and chemical products are facing challenges. The report also includes various figures and charts to illustrate the performance of different economic indicators and sectors.