China's Economy Shows Mixed Recovery Signals
China's economic recovery is a tale of two data sets. Private surveys show factory activity expanding at its fastest pace in five years and services growth hitting a 33-month high. However, official data showed a slump, blamed on the Lunar New Year holiday, prompting Beijing to focus on boosting domestic demand.
The divergence in China's economic data is largely a story of who is being surveyed. The official National Bureau of Statistics (NBS) PMI primarily polls large, state-owned enterprises, which saw manufacturing activity contract for the second straight month with a reading of 49.0 in February. In contrast, the Caixin/S&P Global survey, which focuses on smaller, private, and more export-oriented firms, recorded a jump to 52.1, its highest level since December 2020. A deeper look into the survey sub-indexes reveals a key weakness in domestic demand. The official PMI data showed sub-indexes for both production and new orders slipping into contraction. Conversely, the private Caixin survey indicated that new orders expanded at their fastest pace since 2020, with a notable surge in new export orders, suggesting resilience in external demand. The recent Lunar New Year holiday, the longest on record, provides a snapshot of consumer behavior. While domestic tourism trips surged to 596 million and total tourism spending hit a record 803.5 billion yuan ($117 billion), spending per trip saw a slight dip of 0.2% compared to 2025. This suggests that while more people are traveling, individual consumer caution persists. At the annual "Two Sessions" political gathering, Beijing set a GDP growth target of 4.5% to 5% for 2026, a downgrade from the "around 5%" target of the past three years. This signals a more cautious outlook as the country navigates a protracted property downturn and deflationary pressures. In response to these challenges, Premier Li Qiang's government work report outlined plans to stimulate the economy. These include the issuance of 250 billion yuan in ultra-long special treasury bonds to support a consumer goods trade-in program. The government is also encouraging the purchase of unsold housing stock to be converted into government-subsidized housing. A central theme of the 15th Five-Year Plan (2026-2030) is the strategic priority of expanding domestic demand. There is a clear focus on building up China's capabilities in cutting-edge technologies like artificial intelligence, quantum technology, and 6G. The persistent crisis in the property sector remains a significant headwind, with real estate investment having fallen by 17.2% in 2025. Stabilizing this sector is a stated priority, with policies aimed at reducing housing inventory and preventing debt default risks among developers.
