TD Securities highlights that China’s economy started 2026 on a positive note, led by a rebound in fixed-asset investment driven by quasi-fiscal policy. The team expects Beijing to prioritize growth over inflation as higher Oil prices pose risks, keeping its 4.6% 2026 GDP forecast unchanged while flagging potential US-China tensions if Trump cancels his China trip.

Growth risks from Oil and US-China tensions

"China's economy started on a positive note in the first 2 months of 2026, with the rebound in fixed-asset investment being the biggest surprise in today's report. Quasi-fiscal policy likely drove the rebound in investment figure while China's two-speed economy is still evident as it's mainly manufacturing and exports propelling activity."

"The Middle East conflict presents growth risks as Chinese manufacturers face higher input costs from surging oil prices which may affect output. We expect Beijing to place more emphasis on the growth impact rather than inflation which would put the onus on fiscal policy rather than monetary policy to offset the growth hit."

"We maintain our GDP forecast at 4.6% for 2026 as the growth hit from the oil price shock would likely be evident later in the year and authorities do have the fiscal bandwidth to offset this."

"Trump's FT interview remarks today raised eyebrows on the state of US-China relations. If Trump cancels his China trip, we believe markets are likely to interpret that US-China relations are on a downhill again and US officials may take a more forceful approach (e.g., re-imposition of tariffs) to get China to the negotiating table which may spook markets."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)