China Stimulus Pivot

Overall Assessment

China's fiscal stimulus ahead of the March 2026 NPC is overwhelmingly supply-side dominant, with approximately 75% of new allocation directed toward infrastructure, manufacturing, and financial sector recapitalization, and roughly 25% toward consumer-facing measures.

While Beijing's rhetoric has never been more demand-oriented -- the Politburo has explicitly prioritized 'expanding domestic demand' and the PBOC adopted its first 'moderately loose' stance since the 2008-09 Global Financial Crisis -- the fiscal allocation tells a fundamentally different story. The widest rhetoric-to-reality gap in the analysis period is the defining feature of the current moment. Announced demand-side measures total approximately RMB 0.7 trillion (~0.5% of GDP), against a condition threshold of RMB 2.8 trillion (~2% of GDP), requiring a historically unprecedented 4x escalation that has no precedent in Chinese fiscal history. The most important finding across all six lenses is the central role of China's 40-month PPI contraction (-1.4% YoY) as the dominant external force shaping global macro conditions. This deflationary export channel is the mechanism through which China's supply-side stimulus composition transmits globally: manufacturing overcapacity drives persistent producer price deflation, which suppresses export prices, absorbs tariff costs at origin (resulting in approximately zero pass-through to US consumers despite 25-100% tariff rates), anchors global inflation expectations, and keeps US financial conditions approximately 150-200 basis points looser than the Fed's 3.64% policy rate would imply. Six independent analytical lenses, examining different transmission channels with different data, all converge on this same mechanism. The cross-lens coherence is exceptionally high. This creates the core paradox of the theme: a successful demand-side stimulus pivot -- the very condition this analysis tracks -- would tighten global financial conditions by removing the deflationary tailwind. If Beijing genuinely redirected 2% of GDP toward consumer spending, 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 demand-side pivot that would help China would complicate the global macro environment. This is not a theoretical exercise: the financial-conditions lens documents that conditions at NFCI -0.568 are the loosest on record, and the FOMC has already flagged 'notable vulnerabilities' (elevated valuations, hedge fund leverage, private credit opacity) that are stable only as long as the current deflationary equilibrium persists. The probability of the condition being met (consumer-facing stimulus exceeding 2% of GDP by Q3 2026) is assessed at 10-25%, anchored by three structural constraints: Beijing has never allocated more than approximately 20% of any stimulus package to consumer-facing measures; the structural reforms (hukou, pension, progressive taxation) that would signal a durable pivot are absent; and Xi Jinping's statement that China is on track with 5% growth suggests leadership sees the current supply-side model as working. The commodity market provides real-time confirmation: the copper/iron ore price ratio at 121 (vs 86 a year ago, +40%) is at historically extreme levels, fingerprinting manufacturing/technology stimulus rather than either traditional infrastructure or consumer demand. Oil's 12% decline and the absence of agricultural commodity strength are the commodity market's verdict that no demand-side pivot has occurred. The pre-NPC baseline is highly coherent but fragile in specific ways. The orderly dollar decline (-7.6% YoY), cautious capital flow repositioning, and trade rerouting equilibrium all depend on the current stimulus composition persisting. The March 5 NPC session is the single most important near-term catalyst, with all six lenses identifying specific thresholds that would trigger reassessment. The base case (60% probability) is continued supply-side dominance with modest demand-side increments that preserve the current deflationary equilibrium. The tail risk (10-25%) is a genuine demand-side escalation that would trigger the paradox: helping China while tightening global conditions. A secondary tail risk is China's domestic credit impairment -- the most severe among major economies -- breaching the capital control firewall through a property sector event or LGFV crisis, which would transmit domestic stress globally through channels that are currently contained.

Outcome Space

Each bar shows the probability range for a downstream outcome. Wider bars mean the outcome is more sensitive to the condition. The dot marks the current base-case estimate.