China: Supportive policy but slower growth – BNP Paribas

⦿ Executive Snapshot

What: China experiences a K-shaped economic growth pattern with supportive policies amidst a slowdown.
Who: BNP Paribas economists, Chinese authorities.
Why it matters: The economic trajectory could impact global markets and trade dynamics, highlighting the challenges of balancing domestic demand and export performance.

Economic growth accelerated to +5.0% year-on-year in Q1 2026, compared to +4.5% in Q4 2025.
2025 growth was recorded at 5%, with expectations of a moderate slowdown in 2026.
The growth trajectory is characterized by a K-shaped pattern, indicating strong exports and weak domestic demand.
Authorities are expected to maintain modest fiscal and monetary support in a less supportive global environment.
Deflationary pressures are anticipated to decline in 2026, driven by higher global energy prices and government measures against involution.

The K-shaped recovery illustrates the divergence in growth between different sectors, reflecting ongoing challenges in the property market and domestic consumption.
The continued fiscal and monetary support points to a strategy aimed at stabilizing the economy while navigating global uncertainties, particularly in trade and energy markets.

The immediate implication includes potential volatility in sectors heavily reliant on domestic demand, which may hinder overall economic stability.
Long-term operational implications could involve shifts in investment strategies as global investors reassess risks associated with China's economic landscape.

Potential risks include regulatory challenges and execution roadblocks that may arise from ongoing property sector stress and deflationary trends.
Competition from other economies could limit China's ability to sustain export-led growth, particularly if global demand shifts.

Upcoming economic data releases for Q2 2026 will be critical in assessing the trajectory of growth and the effectiveness of policy measures.
Observations on global energy prices and their impact on domestic inflation will signal the success or failure of the government's anti-involution strategies.