Activity rebounded in the new year, taking our China Activity index up to implied growth of nearly 2% y/y in January and February compared to an outright contraction in Q4 2025.

The two main drivers of the surge were exports and government investment spending. Exports rocketed to nearly 20% y/y in the first two months, and both budgetary spending and infrastructure investment jumped sharply compared to last year's malaise.

It's rather unclear how long these boosts will last. As in Taiwan and Korea, the China export surge appears tied specifically to AI spending, raising questions of sustainability. And opinions are mixed on the fiscal stimulus front between those who believe the government is finally unleashing official spending and those who see a short-lived spurt at the beginning of the new five-year plan.

Meanwhile, and crucially, domestic private demand is still sinking. In contrast to the export and budget trends, private consumption, housing and investment numbers all trended even weaker, not stronger, in the first two months of 2026.