China Outlook Factors shaping growth momentum

Research evidence excerpt

China Outlook Factors shaping growth momentum

Barclays | China Outlook

(+51.7% vs consensus: +39%). Moreover, although fuel prices may take time to normalise, the

US-Iran peace agreement should help mitigate downside risks to external demand, as well as

to domestic production associated with prolonged oil price shocks.

• Second, we note that the positive effects of previously announced policies are still unfolding.

In particular, the CNY800bn new financing tool (vs CNY500bn in 2025) had not yet been

deployed as of late May. We expect disbursements to commence in H2, providing incremental

support to growth. It was reported that the CNY800bn new financing tool will be channelled

towards sectors similar to those in 2025, including digital economy, AI, low-altitude economy,

infrastructure and green transition, with a heavier focus on services1 .

• Third, beyond the announced (but not yet deployed) CNY800bn new financing tool, we see

scope for the authorities to introduce additional (quasi-)fiscal stimulus to support domestic

demand and arrest the rapid loss of growth momentum. As 2026 marks the first year of the

15th Five-Year Plan, policymakers likely retain flexibility to bring forward infrastructure

projects and step up support in late Q3 or early Q4 if needed. Beyond infrastructure, the

government could also consider scaling up trade-in programmes to bolster consumption

should retail sales continue to disappoint and contract.

Key takeaways from May activity data

• Retail sales contracted for the first time since the COVID reopening (May: -0.6% y/y, April:

0.2%, Figure 1), reflecting payback from trade-in goods subsidies and auto subsidies,

unfavorable base effects, a challenging labour market, ongoing household deleveraging