China’s mirage quarter: Q1 GDP prints 5.4% — But the real slowdown starts now

China’s headline Q1 GDP growth of 5.4% YoY might look like a win on the surface, but let’s not pretend this caught anyone off guard. Much of this was front-loaded — fueled by a burst of preemptive activity ahead of U.S. tariff escalations and an inventory binge stateside as importers scrambled to get ahead of the curve. Throw in base effects from a weak Q1 last year, and suddenly the “surprise” fades fast.

Dig beneath the headline, and the cracks are clear. Industrial output remains bloated, the property sector is still in ICU, and consumer confidence hasn’t meaningfully recovered. What strength there is largely comes from state-supported infrastructure and policy pipelines, not organic demand. Retail sales are decelerating, credit impulse is rolling over, and the export pipeline looks increasingly fragile with the tariff wall now a semi-permanent fixture of global trade.

And let’s be real — this isn’t just about soft external demand. The U.S. is locking China out of its supply chains with near surgical precision, and Europe isn’t exactly rolling out the red carpet either. The world isn’t queuing up to absorb China’s excess industrial output — especially not as overcapacity bleeds into deflation and global political backlash.

So, while 5.4% looks solid on paper, let’s not kid ourselves. This is more about a high starting point than genuine momentum. State media will spin it as “less bad,” but the trajectory from here is unmistakably ugly.

With forecasts dropping below 4% for the next few quarters, that’s a steep cliff from Beijing’s official 5% growth target. And with U.S. tariffs staying sticky, there’s simply no external demand to compensate for the tariff wall. The global buyer pool isn’t stepping up — and the rest of the world isn’t about to play shock absorber for China’s overcapacity problem.

The shift in China cross-assets is pretty much playing out exactly as expected—total “crickets” on equities, just a muted tape. The Yuan’s leaning lower with a soft negative skew, also par for the course.

Bottom line? Q1 is just a mirage — the real slowdown story starts now.