⦿ 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.

⦿ Key Developments

• 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.

⦿ Strategic Context

• 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.

⦿ Strategic Implications

• 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.

⦿ Risks & Constraints

• 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.

⦿ Watchlist / Forward Signals

• 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.