An uneven rebound | The weekly recap

After a miserable end to 2025, China’s economy has started 2026 on a much stronger footing.

In case you missed it: The economy slowed significantly in Q4 last year.

• Quarterly GDP grew by 4.5% y/y – the slowest rate since the pandemic.
• Retail sales grew a measly 1.7%.
• Fixed asset investment (FAI) posted seven straight months of decline.

Ouch.

The first two months of 2026 tell a different story.

• Activity picked up across the board – with stronger industrial output, a rebound in investment, and tentative signs of stabilization in consumption.

At first glance, this looks like a solid recovery.

• But scratch beneath the surface, and things get more complicated.

Let’s start with what’s driving the upside.

First up, China’s supply-side is surging.

• Manufacturing output grew 6.6% y/y across the first two months of this year, marking the fastest pace of expansion since mid-2025 – driven by gains in general equipment, rail, and electrical machinery.

That strength is feeding into investment: Manufacturing FAI grew 3.1% y/y, snapping a six-month losing streak – with the sectors where production surged posting the biggest gains.

• FAI in rail and shipbuilding jumped 31% y/y, while investment in industrial equipment manufacturing rose 7%, and investment in electrical machinery increased 6%.

Meanwhile, price dynamics are becoming less of a headwind to China’s manufacturing sector.

• Producer prices fell 0.9% y/y in February, marking the slowest decline in 19 months, while month-on-month, producer prices rose 0.7%.
• As producer price deflation bottoms out, profit margins for manufacturers should gradually improve – giving firms more room to ramp up production even further.

The second upside is China’s external sector, which remains a major source of strength.

• Exports surged 21.8% y/y in value terms in the first two months of 2026 – the fastest pace in more than four years.
• Shipments to the US fell 11% y/y, while exports to ASEAN and the EU grew by close to 30%.
• Exports to Africa soared 50%, continuing a remarkable expansion in China’s trade with developing markets.

There are also signs that domestic demand is stabilizing – but only just.

• Retail sales of consumer goods grew 2.8% y/y across January and February, up from just 0.9% in December.

But let’s not get carried away: That growth rate is weak by historical standards, and well below overall growth of the economy.

• Meanwhile, geopolitical uncertainty from the Iran war – along with a spike in energy prices – may incentivise consumers to reduce spending and increase discretionary savings in the coming months.
• If the manufacturing of consumer goods durables continues to outstrip demand, China’s economy will be forced to offload surplus production to foreign markets or suffer renewed deflationary pressures.

Despite these risks, Zhongnanhai seems pretty chilled.

• At this month’s Two Sessions, officials outlined a policy toolkit largely unchanged from 2025, suggesting Beijing is comfortable with its current growth mix.
• Authorities are extending the consumer goods trade-in program and rolling out targeted interest subsidies to support household borrowing – incremental measures that will help stabilize spending but won’t drive a rapid rebound in demand.

This suggests continuity in China’s macroeconomic strategy – and a relatively steady growth trajectory this year.

Over time, policymakers hope that improved household income growth and a gradual expansion of public services will strengthen domestic demand.

• But for the foreseeable future, China’s economy is likely to remain characterized by the same imbalance visible in the latest data – robust supply-side activity alongside cautious household spending.

Joe Peissel, Senior Macroeconomic Analyst, Trivium China

What you missed

Commodities

China’s aluminum inventories topped 1.34 million metric tons on Monday – the highest level since the 2020 pandemic.

A few factors are contributing to soaring supplies.

• China’s upstream alumina refining sector is bloated, and set to grow further in 2026, fueling overproduction at smelters.
• The Spring Festival holiday dampened demand from domestic manufacturers, many of which idle around the holiday period, allowing inventories to build up.
• Aluminum prices have spiked worldwide, driven by shutdowns and shipping disruptions in the Gulf, which further dampened demand across value chains.

Business environment

On Tuesday, the macro planner (NDRC) announced a new batch of 13 “landmark major” foreign direct investment projects totaling USD 13.4 billion.

• Since 2018, the NDRC has led a program to facilitate signature foreign investment projects over USD 1 billion, periodically announcing new batches as part of Beijing’s broader push to attract FDI.
• While the latest batch is still manufacturing-heavy, state media stressed Beijing’s expanding focus on services – highlighting that logistics projects have made the list for the first time.

Tech

On Tuesday, Baidu held a launch event in Beijing unveiling its strategy to launch a suite of products built around OpenClaw, the open-source AI agent framework that has taken the developer world by storm.

• OpenClaw is a local-first framework that turns AI models from chatbots into action-oriented agents.
• The company is rolling out a whole family of OpenClaw-powered agents, including DuMate, a desktop AI agent for office automation, and Home Lobster, billed as the world’s first home-environment agent, integrating online and offline task execution across devices.
• Alibaba, Tencent, ByteDance, Xiaomi, Zhipu, Minimax, and many others are rolling out OpenClaw powered tools.

Agriculture and rural affairs

Beijing just released a long-awaited policy that will shape rural land use for decades.

• The Party Central Committee and State Council’s March 18 guidelines instruct localities to extend the term of soon-to-expire rural land contracts by another 30 years, with pilots beginning in 2026.
• The policy will affect the roughly 160 million rural Chinese households whose contracts expire over the next five years, giving them confidence that their most valuable asset will remain in their hands for the long term.

Foreign affairs

On Monday, top diplomat Wang Yi, Public Security Minister Wang Xiaohong, and Defense Minister Dong Jun met with their Vietnamese counterparts in Hanoi for the first 3+3 Strategic Dialogue on diplomacy, defense, and public security.

• The 3+3 dialogue emerged from Xi Jinping’s trip to Vietnam last April, his second state visit to the country in two years amid a major Chinese diplomatic blitz toward Hanoi.
• The Chinese delegation said that, as “friendly socialist neighbors,” China and Vietnam should have each other’s back including by cooperating in international trade frameworks, properly addressing maritime issues, and guarding against “color revolutions.”

US-China

On Monday, US President Donald Trump told reporters that he planned to delay his long-awaited trip to China by “a month or so.”

• Trump said he needs to focus on Iran: “I’d love to [visit China] but because of the war, I want to be here.”
• Treasury Secretary Scott Bessent, fresh off talks with Chinese Vice Premier He Lifeng, said the postponement was down to “logistics,” not hardball diplomacy.

On Thursday, The Paper reported that an anti-drug taskforce in Hubei province had arrested seven people and subjected 12 more to “criminal compulsory measures” in a crackdown on the production and export of fentanyl precursor chemicals.

• Hubei established the taskforce in December 2025, shortly after Xi Jinping and Donald Trump agreed to deepen fentanyl-related cooperation during their summit in Busan in October.
• This is the first publicly reported action in China involving arrests related to fentanyl precursors since the summit.
• An unnamed US official told Reuters: “We want ​to ⁠see seizures and convictions, not just ⁠arrests.” 

The US Intelligence Community (IC) has changed its tune on Taiwan.

• In its 2026 Annual Threat Assessment, released Wednesday, the IC states that Chinese leaders: “Do not currently plan to execute an invasion of Taiwan in 2027, nor do they have a fixed timeline for achieving unification…[and] prefer to achieve unification without the use of force.”
• The 2025 report was much more skeptical: “The PRC calls for a peaceful unification with Taiwan…even as it threatens to use force to compel unification if necessary.”

As always, it was a busy week in China.

• Thank goodness Trivium China is here to make sure you don’t miss any of the developments that matter.