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Although the US–China trade talks offered optimism over the trade outlook, the broad-based weakness in domestic demand remains a concern. Consumption, production, investment, and credit growth all stayed subdued in April. Higher energy prices and supply chain disruptions posed additional headwinds to growth.

Trade

External trade momentum remained robust. Exports grew from 2.5% yoy in March to 14.1% in April, despite a moderation in March amid Middle East-related disruptions. Strength was driven primarily by non-US trading partners, while imports accelerated to 25.3% yoy, as manufacturers increased purchases of intermediate goods in response to stronger export orders.

The Xi–Trump summit suggested an easing in global trade uncertainties. The establishment of the U.S.–China Board of Trade and Investment was expected to address issues such as tariff reductions on non-sensitive goods, as well as rare earth-related exports.

The promotion of bilateral trade was expected to support China’s export momentum, given that the US accounted for around 10% of China’s total exports as of April. If exports to the US were to recover from the current 10.9% YoY YTD decline to flat growth, this would add roughly 1.1% upside to total exports.

Meanwhile, the additional purchases of 200 aircraft and USD17bn of agricultural products from the US were unlikely to materially dent China’s trade surplus, as China may reduce imports from other countries accordingly.

Industrial production

Industrial activity softened amid war-related uncertainty and ongoing “anti-involution” measures aimed at curbing excess capacity. Industrial production growth eased from 5.7% yoy in March to 4.1% in April. On a positive note, New Productive Forces industries saw further expansions. Growth of integrated circuits and industrial robots were up 22.1% yoy and 15.1% yoy respectively.

Fixed asset investment (FAI)

Investment sentiment remained tepid. FAI reversed from the brief rebound of 1.7% yoy ytd growth in 1Q to a contraction of 1.6% in April. Private investment extended its decline to 5.2% YoY. Investment sentiment stayed weak across most sectors. Exceptions of transportations and mining were largely supported by policy stimulus and higher commodity prices.

Real estate sector continued to weigh on growth. Property investment fell by 13.7% in the first 4 months, with developers continuing to prioritize project completion. Elevated inventories (33 months of residential turnover) weigh on prices and sales. Improvements were largely contained in Tier 1 cities.

Retail sales

Household sentiment stayed weak. Retail sales growth decelerated from 1.7% yoy in March to 0.2% in April 2026, reflecting subdued income growth and uncertain employment conditions. Precautionary savings remained elevated, while weakening property prices continued to erode household wealth effects, suggesting consumption is likely to remain subdued in the near term.

Loan and deposit

Monetary data remained soft. Outstanding loan growth continues to search for its bottom with a two-decade low of 5.6% yoy in April. Both corporate and household medium- to long-term loans declined, reflecting early repayments and cautious borrowing sentiment. The M2–M1 gap slightly widened to 3.6 ppts in April, but weak credit expansion suggests that recent liquidity support has yet to transmit meaningfully into the real economy.

Inflation

Price dynamics improved further. Factory-gate inflation accelerated to 2.8% yoy in April. Rising commodity prices are providing some support to upstream industrial profits. However, downstream manufacturers and retailers are likely to face margin pressure from rising input costs. Both headline and core CPI continue to lag well behind PPI, rising only 1.2% yoy amid still-tepid domestic demand. Over time, this could spill over into slower income growth if jobless rates rise. Middle East tension could add inflationary pressure with a lag of around one to two quarters, as higher energy and shipping costs weigh on both production activity and consumer demand

Conclusion and implication on rates

We now expect no cuts to the 1Y LPR over the next 18 months. Like other central banks including the Fed, surging energy prices reduce the likelihood of near-term monetary policy easing. The government is likely to expedite fiscal support to bolster growth. A resilient external sector and improving trade relations with the US could help stabilise overall growth momentum. Policymakers appear comfortable maintaining a targeted easing approach rather than pursuing broad-based rate cuts.

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