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Standard Bank Group
Inside China 16 April 2026

Calculated complacency

Jeremy Stevens

  • Beijing's policy restraint reflects the conviction that China has passed the post-pandemic nadir and entered a phase of endogenous stabilisation—rendering aggressive stimulus unnecessary and potentially counterproductive to balance-sheet repair.
  • The economy continues to run on parallel tracks—supply-side resilience (exports up 14.7%, industrial output at 6.6%) sustains capacity absorption and nudges PPI into the positive, while demand-side consolidation persists (retail at 2.8%, property sales down 34%, bank lending at record lows).
  • The Two Sessions revealed a strategic pivot from short-term stimulus to structural durability (“New Productive Forces”). Fiscal policy is now dominated by “balance-sheet repair” operations (debt swaps, pension adjustments, the “three guarantees”), leaving less than CNY1tn in net demand-creating impulse despite a deficit of 10% more of GDP.
  • The analytical foundation for Beijing's composure rests upon a counterintuitive supposition that has largely escaped international notice: Chinese households appear to be repairing their balance sheets. Balance sheets are recovering despite falling property prices, via cash-flow stability (savings rate stabilised at 32–33%) and equity-market rotation (20% of new savings flowing to stocks, restoring CNY12tn in market cap), decoupling the wealth recovery from the housing market.
  • The China Resident Risk Appetite Index is just one proxy that corroborates this thesis, tracing a stepwise rehabilitation from 2022 lows across macro liquidity, leverage dynamics, employment bedrock, and capital market sentiment—supporting the case for policy patience.
  • However, the Iran war alters the status quo. The conflict introduces a toxic cost-push shock that threatens to compress margins at a time of fiscal firepower being depleted and households unable to absorb pass-through pricing.
  • Granted, real GDP growth is expected to slow sequentially, from 5.0% in the first quarter, to 4.4% in the fourth. However, the critical adjustment this year is that the GDP deflator may turn positive for the first time since 2022. Nominal GDP growth may therefore recover from 4.0% in 2025 to 5.0–5.5% in 2026. These price dynamics will support corporate revenue, expand profit margins, and reduce the real burden of debt—all of which would fortify balance-sheet repair and risk-appetite normalisation. Of course, this is contingent on an imminent cessation of the Iran war, and a constructive détente between President Xi and President Trump in May.
  • Africa vulnerability: the same supply-chain inflation and margin compression strain China's “pressure-release externalisation” mechanism in Africa, where strategic infrastructure projects and the commercial growth engine (solar, EVs) face their first cost-structure test.
 

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