China Stocks Gain but Growth Outlook Darkens Under Trade and Job Concerns

Stimulus Fanfare Dims as China’s Economy Dawdles Amid Geopolitical Tensions

Despite Beijing’s stimulus blitz, China’s economy is treading water, casting doubt on whether policy support can offset mounting global headwinds. This week, China’s Caixin Manufacturing PMI for March pointed to a pickup in output. Despite significant government support, front-running US tariffs could have boosted demand.

While China’s PMIs reflected some cautious optimism, US economic indicators remained under pressure.

China Decoupling Gains Momentum

As the US escalates measures against China—ramping up tariffs and blacklisting tech firms to curb Beijing’s AI ambitions—the US economy is showing further signs of stress.

On March 31, Nick Timiraos, Chief Economics Correspondent for the Wall Street Journal, commented on US inflation, the economic outlook, and the Fed’s rate path, stating:

“Goldman now expects core PCE to rise to 3.5% this year versus 3.0% under previous assumptions for less aggressive tariffs. They expect the Fed to cut three times in the second half of the year to address the hit to growth and employment.”

Goldman also raised the odds of a 2026 recession to 35%, up from 20%, citing Trump’s tariffs.  Goldman’s outlook followed FMOC Economic Projections, which cut the 2025 GDP growth forecast from 2.1% to 1.7%.

These adjustments are in contrast to growing optimism from institutions about China’s outlook. Several global institutions have raised their China growth forecasts:

• World Bank: 4.5% GDP growth for 2025, up from a previous 4.1% forecast.
• OECD: Raised its 2025 GDP growth projection from 4.7% to 4.8%.
• Morgan Stanley: Increased 2025 GDP growth forecast from 4.0% to 4.5%.
• S&P Global: 10% tariffs to slow China’s GDP growth to 4.1% in 2025.
• IMF: Projected GDP growth of 4.6%

Is China Weathering the Trump Storm?

It may be too early to tell whether China is weathering the Trump storm. Recent strength in economic indicators may reflect front-loading activity as firms race to beat tariff deadlines.

While financial institutions have upwardly revised growth forecasts, economists remain divided:

Chief Global Strategist and the Director of Research at BCA, Peter Berezin (formerly with Goldman and the IMF), commented:

“The global economy is currently benefiting from massive tariff front-running, as evidenced by the surge in imports to the US. This has temporarily propped up production in places like Europe, Canada, and China. The floor falls out next week.”

With auto tariffs effective April 2 and reciprocal tariffs likely to follow, the front-loading effect will fade. Sweeping tariffs also make it harder for China to bypass levies through third-party routes like Mexico. This raises the risk of a demand slump for Chinese automakers and tech firms—though such effects may not immediately show in trade data. Instead, corporate earnings could offer a clearer gauge of the damage.

Risks to China’s Recovery

Weaker demand may dampen investment and hiring in China. Rising unemployment in China could limit the effectiveness of Beijing’s stimulus measures aimed at boosting domestic demand.

In February, China’s unemployment rate jumped to 5.4%, up from 5.1% in January. Notably, youth unemployment rose from 16.1% to 16.9% in February, painting a far gloomier picture.

A Beijing response to US tariffs may stoke fears of a full US-China trade war. The Kobeissi Letter signaled a potential tariff response on March 31:

“China, Japan and South Korea will jointly respond to US tariffs as President Trump’s April 2nd reciprocal tariff day nears, per Reuters. Mexico has already announced that a response is coming as soon as April 3rd. Reciprocal tariffs on reciprocal tariffs are coming next.”

Mainland and Hong Kong Equities Show Resilience

Optimism over Beijing’s policy support has bolstered demand for Hong Kong and China stocks. The Hang Seng Index is up 15.25% year-to-date (YTD), while China’s CSI 300 is down just 1.21%. In contrast, the Nasdaq Composite has declined 10.29%.

Significantly, the CSI 300 fell 0.07% in March, while the Hang Seng Index gained 0.78% versus an 8.21% monthly decline for the Nasdaq Composite Index. If Beijing succeeds in cushioning its key sectors from US tariffs, the divergence between Chinese and US equity markets may grow.

However, if Beijing disappoints or geopolitical tensions escalate, the Hong Kong and Mainland China markets have a long way to fall.

Looking Ahead

China’s ability to blunt the impact of rising tariffs will hinge on swift and targeted stimulus. Without decisive action, the risk of a sharp economic and market reversal will likely intensify in the months ahead.

Stay with us for in-depth coverage of China’s economic trajectory and its global market implications.