China - Green shoots meet trade war

• The Chinese economy saw green shoots in Q1, but the trade war created a new headwind in April.

• Still, we leave our growth outlook unchanged as our medium-term scenario for the trade war remains the same with an end game of 40% tariffs on Chinese goods following a long bumpy road of trade talks. Stimulus was pushed forward as expected to counteract tariff effect.

• We continue to see growth at 4.7% in 2025 and 4.8% in 2026. 

• Over the coming months we expect a pick-up in activity due to front loading of exports during the 90-day trade truce but see activity moderating again after that.

• Housing and private consumption have improved but lots of work remain to get the two sectors on stronger footing.

• A growing number of tech milestones have boosted confidence.

• The US-China rivalry is set to continue. US tech sanctions keep widening while China retaliates with limits on rare earth exports.

• Trump’s America First policy has led to a thaw in EU-China relations. Tensions remain, though, when it comes to China’s rise as a competitor, industrial policy, overcapacity, and China’s position on the Ukraine war.

Activity to pick up as trade war truce boosts exports

China’s economy was off to a strong start in Q1 with GDP growth of 5.4% y/y and green shoots with moderate improvement in housing and retail sales. Equity markets also saw strong performance with offshore stocks up 20% by the end of March. However, with April’s sharp escalation in the trade war leading to a de facto trade embargo between US and China, a new strong headwind showed up and data for April came in weak. The pendulum swung back quickly again, though, with the sharp de-escalation of the trade war in early May. The two sides have agreed to a 90-day trade truce with tariff rates at 10% and 30% on US and Chinese goods, respectively. This has already led to a surge in export orders as US companies are in a hurry to order goods from China before tariffs might go up again.

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