MNI: Robust Exports To Support China's 5% Growth - Advisors

Robust exports and government-led infrastructure investment are expected to lift China’s Q1 GDP growth to around 5% from Q4’s 4.5%, before a modest slowdown in Q2, advisors told MNI, noting the country’s deep supply chains and diversified trade partnerships have helped mitigate the impact of the Iran conflict. 

While Spring Festival-driven consumption and the launch of major projects tied to the 15th Five-Year Plan will also boost the Q1 result, growth will likely edge down to about 4.8% in Q2 as Iran war impacts gradually emerge and the prolonged property market adjustment continues to constrain consumer spending, said Gong Liutang, director of the Institute for Advanced Study at Wuhan University.

Exports will remain a key driver, he added. “The Middle East conflict offers opportunities for Chinese new energy products such as electric vehicles, as well as diesel generator sets used for emergency power supply,” Gong argued. Despite a high base effect likely moderating March export growth from the 21.8% year-on-year gain in the first two months, China is still expected to maintain a trade surplus similar to Q1 2025’s roughly CNY2 trillion, he added.

Su Jian, professor at the School of Economics and director of the National Center for Economic Research at Peking University, expects exports to maintain relatively strong growth this year, supported by shipments to the EU and Regional Comprehensive Economic Partnership (RCEP) countries following 2025’s trade negotiations. Leaders from multiple countries led economic delegations to China earlier this year, signalling a potential improvement in the bilateral trade environment, Su said, adding the price advantage of Chinese goods will partially offset the decline in external demand caused by high oil prices.

Xu Hongcai, deputy director of the Economic Policy Commission at the China Association of Policy Science, said exports to the U.S. could stabilise in the second half after falling 11% y/y in the first two months, supported by an expected meeting between Xi Jinping and Donald Trump in May. However, while volumes may increase, exporters may not be making money, Xu cautioned, noting higher tariffs have prompted supply chain shifts, with some orders re-exported to the U.S. via third countries, raising costs. 

Sustained rapid export growth could prove unsustainable and risk triggering dissatisfaction among global trading partners, he warned. Second-quarter GDP could still reach around 5%, underpinned by rapid export growth which faces a lower base of comparison from the same period last year, while geopolitical risks could ease by end-April following the latest ceasefire, limiting the impact on China’s economy, he predicted. 

IMPORTED INFLATION

Advisers expect consumer inflation to remain below the 2% annual target. CPI rose just 1% in March, even as the PPI returned to growth for the first time in 41 months, rising 0.5%. (See MNI INTERVIEW: Iran War To Push China’s PPI Positive - Advisor)

“In extreme cases, CPI could exceed 2% in certain months, but at present, the probability is not high,” said Su, noting last year’s low inflation base may provide some upward pressure on prices this year. Persistent overcapacity would limit the pass-through of upstream cost pressures to downstream industries, he added, while rebounds in January-February retail sales and fixed-asset investment are insufficient to confirm a sustained recovery in domestic demand.

Xu, also chairman of Beijing Honglve Consulting Limited Company expects only temporary imported inflationary pressures, potentially delaying the People’s Bank of China’s need to cut interest rates or the reserve requirement ratio, but unlikely to alter the moderately easing stance. (See MNI: Energy Price Jump To Restrain, Not End PBOC Easing Bias) The central bank should continue to maintain ample liquidity, with M2 growth of 8-9%, Xu noted.

Gong added the government could consider fiscal subsidies or tax and fee cuts for affected industries and households to help stabilise employment.