China's 75/25 Paradox: The Demand Pivot That Would Help China and Hurt Everything Else
We ran China's pre-NPC stimulus composition through 6 macro-specific analytical lenses — stimulus composition, commodity transmission, inflation regime, global spillover, trade transmission, financial conditions — producing 12 signals, 5 cross-lens themes, and 6 paired conditional markets. The core finding: a demand-side pivot would help China but tighten global conditions.
40 consecutive months of deflation
Fiscal allocation ratio
Loosest in dataset; ~60% China attribution
Demand-side >2% of GDP by Q3 2026
The National People's Congress convenes March 5 in Beijing. The annual session is the single most important catalyst for global macro conditions identified across all six of our analytical lenses. The question is not whether China will announce stimulus — it will. The question is the composition: supply-side (infrastructure, manufacturing subsidies, bank recapitalization) or demand-side (consumer spending, social safety net, structural reform).
The current allocation is approximately 75% supply-side and 25% consumer-facing. This ratio sustains a deflationary export cycle that is, by our assessment, the single most important external force shaping global macro conditions. China's 40-month PPI contraction at -1.4% YoY suppresses US import prices, absorbs tariff costs at origin, anchors global inflation expectations, and keeps US financial conditions approximately 150-200 basis points looser than the Fed's 3.64% policy rate implies.
We built 6 macro-specific analytical lenses to examine this transmission mechanism from different angles. Each lens consumed PBOC policy statements, FRED economic data, commodity market data, trade statistics, and fiscal allocation analysis. The result: 12 signals that all converge on the same causal chain, with exceptionally high cross-lens coherence.
Our Assessment
China's supply-side stimulus dominance sustains a self-reinforcing deflationary export cycle that is paradoxically both a problem for China and a subsidy for global risk appetite.
The demand-side pivot that would help China — reflating the domestic economy, stabilizing property, restoring consumer confidence — would paradoxically tighten global conditions by removing the deflationary tailwind that currently subsidizes risk appetite worldwide. Our conditional markets quantify this: retail sales see a +24pp causal delta, CPI +23pp — but US HY spreads widen only +8pp. Direct domestic effects dominate second-order global financial effects by roughly 3x. The paradox is real but not catastrophic. The probability of a genuine pivot is 10-25%, anchored by three structural constraints that have no historical precedent for being breached simultaneously.
View the full signal dashboard, conditional pairs, and cross-lens themes
12 signals. 6 conditional market pairs. Interactive analysis page.
1. The Deflationary Export Channel Is the Dominant Global Force
China's PPI deflation exporting disinflation globally. US CPI at 2.4% and moderating.
NFCI at -0.568. ~60% attributed to China's PPI deflation channel. 150-200bp policy divergence.
The strongest cross-lens convergence in the entire analysis: all six lenses independently identify China's 40-month PPI contraction as the dominant external force shaping global macro conditions. The mechanism is straightforward — manufacturing overcapacity drives persistent producer price deflation, which suppresses export prices, which absorbs tariff costs at origin, which anchors global inflation expectations, which keeps financial conditions substantially looser than the Fed's policy rate would predict.
The quantitative evidence is striking. Non-petroleum import prices are flat (+0.9% YoY at 108.41) despite 25-100% tariff rates and 7.6% dollar depreciation. Both of those forces should be inflationary for US imports. Neither is. China's deflationary export pricing absorbs tariff costs and FX effects simultaneously — a finding independently confirmed by the trade-transmission, inflation-regime, and global-spillover lenses.
2. The Supply-Side Cycle Is Self-Reinforcing
75% supply-side / 25% demand-side allocation. Demand share growing but supply expanding faster in absolute terms.
CPI +0.2%, PPI -1.4% for 40 months. PBOC most accommodative since 2008-09 with zero credit activation.
The cycle's stability is confirmed by the gap between current demand-side allocation (~RMB 0.7 trillion, approximately 0.5% of GDP) and the condition threshold (RMB 2.8 trillion, approximately 2% of GDP). The required 4x escalation has no precedent in Chinese fiscal history. Beijing has never allocated more than approximately 20% of any stimulus package to consumer-facing measures. And the supply-side model appears to be "working" from leadership's perspective — GDP growth hit approximately 4.9% in 2025.
3. The Widest Rhetoric-to-Reality Gap on Record
Bilateral US-China trade down 33%. Tariff pass-through to US consumers: approximately zero.
Rerouting through Vietnam/Mexico/Malaysia, not reshoring. Output +1.3%, employment -81K.
Beijing's policy language has never been more demand-oriented. The Politburo explicitly prioritized "expanding domestic demand." The PBOC adopted its first "moderately loose" monetary stance since the 2008-09 Global Financial Crisis. The Central Economic Work Conference elevated consumption as a "long-term strategy" for the 15th Five-Year Plan. A new "Consumption Boosting Action Plan" was issued.
Yet the fiscal allocation remains 75% supply-side. The inflation-regime lens confirms no demand activation in prices. The commodity-transmission lens shows manufacturing metals surging while consumer-linked commodities stagnate. The trade-transmission lens shows continued deflationary export pricing. Four independent lenses measuring four different data sources all reach the same conclusion: the rhetoric is not matched by allocation.
4. The Commodity Market's Verdict: No Demand Pivot
Copper +39.2% (EV/grid/renewables). Iron ore -0.7%. Oil -12%. Bifurcated, not broad.
Chile best positioned (copper). USD weakness primary driver, not broad commodity reflation.
Copper at $12,987/ton — up 39.2% in 12 months — looks like it contradicts the deflation narrative. It does not. Both the commodity-transmission and inflation-regime lenses independently confirm copper's rally reflects supply-side investment demand (EVs, grid infrastructure, renewables) rather than consumer demand activation.
The discriminant is the divergence with other commodities. The copper/iron ore price ratio sits at 121 (versus 86 a year ago, +40%) — historically extreme levels that fingerprint manufacturing- and technology-focused investment. Iron ore is flat (-0.7%), oil is down 12%, and agricultural commodities show no strength. A genuine demand-side pivot would appear first in oil and agricultural outperformance. Neither is present.
5. The Demand-Side Pivot Paradox
Trade-weighted dollar -7.6% YoY. CNY at 6.91 from 7.25 — markets front-running NPC expectations.
5Y TIPS 2.43%, 10Y TIPS 2.28%. Anchored by China's deflationary tailwind.
The central tension of this theme: the condition being tracked — a genuine demand-side pivot exceeding 2% of GDP — would simultaneously help China and complicate the global macro environment. If Beijing redirected spending toward consumer channels at scale, domestic absorption would increase, overcapacity would moderate, PPI deflation would ease, export prices would rise, tariff pass-through would materialize, US import prices would increase, inflation expectations would drift higher, and the 150-200bp conditions-policy divergence would narrow.
The FOMC has already flagged "notable vulnerabilities" — elevated equity valuations, hedge fund leverage, private credit opacity — that are stable only as long as the current deflationary equilibrium persists. The system's stability depends on Beijing continuing to do the thing that is not working for its own citizens.
What Would a Demand-Side Pivot Change?
The condition probability is 10-25% (midpoint 15%) — low, but the question "what would happen if Beijing did pivot?" is precisely what conditional markets are designed to answer. We generated 6 paired markets, each with an IF PIVOT (demand-side stimulus exceeding 2% of GDP) and IF NO PIVOT branch, then ran a 108-call model ensemble to estimate probabilities for each branch independently.
The causal effect delta — the difference between the IF PIVOT and IF NO PIVOT probability — measures how much Beijing's stimulus composition causally affects each downstream outcome.
Two markets are notably less informative for pivot detection. Copper shows a 68% base probability without a pivot, reflecting green transition demand that sustains prices regardless of stimulus composition. USD/CNY shows a 22% base probability of trading below 6.70 even without a pivot, suggesting structural dollar weakness (BOJ carry unwind, rate differential compression) may push the yuan through that level independently.
What Emerged Across All 6 Lenses
China's deflationary export channel is the global macro anchor — identified as the dominant transmission mechanism by all six lenses. PPI deflation suppresses import prices, anchors expectations, loosens conditions, and absorbs tariffs simultaneously.
Supply-side stimulus creates a closed-loop equilibrium — manufacturing subsidies drive overcapacity, overcapacity drives deflation, deflation drives cheap exports, cheap exports reduce pressure to pivot. The system resists disruption from incremental demand-side measures.
Rhetoric-reality gap is at its widest — Beijing's language has never been more demand-oriented while allocation remains 75% supply-side. Four lenses independently measure this gap through prices, commodities, trade flows, and fiscal data.
Orderly global adjustment masks structural fragility — NFCI at -0.568, credit spreads below median, dollar decline orderly. Yet the equilibrium depends on China's deflation persisting — itself a structural imbalance. FOMC flagged "notable vulnerabilities" stable only while this lasts.
March 5 NPC is the binary catalyst — all six lenses converge on the NPC session as the single most important near-term data event, with specific thresholds identified for each lens that would trigger reassessment. Consumer allocations above 1% of GDP (~$190B) would be the threshold for a meaningful shift.
Scenario Matrix: What March 5 Could Bring
NPC confirms supply-side priorities with modest consumer increments. All signals persist. Deflationary export channel strengthens. Global conditions remain loose. Current equilibrium preserved.
NPC adds incremental consumer measures at 0.5-1.0% of GDP. Marginal shifts in signals but insufficient to break the overcapacity cycle. Condition probability rises to 25-35% but remains below threshold.
NPC announces consumer-facing measures exceeding 2% of GDP. The paradox activates: inflation trajectory shifts, financial conditions tighten, dollar finds a floor. Helps China, complicates global conditions.
How This Works
The macro analysis pipeline mirrors our equity analysis architecture but adapted for macroeconomic policy events:
6 macro-specific lenses — stimulus composition, commodity transmission, inflation regime, global spillover, trade transmission, and financial conditions. Each lens has defined analytical scope, 2 signal definitions, evidence ladder criteria, and monitoring triggers. The lenses consume PBOC policy data, FRED economic series, commodity market data, and trade statistics.
Conditional market pairs — each market has two branches sharing identical resolution criteria but conditioned on opposite outcomes of the triggering event. The unconditional probability auto-updates when the external probability changes: P(Y) = P(Y|T) × P(T) + P(Y|F) × P(F). This allows the framework to continuously adjust without re-running the prediction ensemble.
Split-prompt ensemble — 9 independent reasoning perspectives per branch (3 Opus + 3 Sonnet + 3 Haiku), each reasoning from first principles without seeing other models' outputs. 6 pairs × 2 branches × 9 models = 108 total model calls. Aggregated by median with model agreement measured as 1 minus normalized standard deviation.
Explore the full interactive macro analysis
Signal dashboard, conditional pairs table, cross-lens themes, and overall assessment.