TD Securities’ Alex Loo reports that China’s economy began 2026 with positive surprises in Industrial Production, Exports, and a rebound in Fixed-Asset Investment, largely attributed to quasi-fiscal policy measures [1]. Despite this strong start, Loo highlights mounting external risks, particularly from elevated oil prices due to the Middle East conflict and uncertainty surrounding US-China trade negotiations, including the potential cancellation of a planned visit by former President Trump [1].
Loo notes that if oil prices remain around US$100 per barrel for the next three months, Chinese authorities are expected to implement targeted policy support measures such as tax cuts and subsidies to assist SMEs and manufacturers facing higher input costs [1]. The focus is anticipated to shift towards mitigating growth impacts rather than inflation, with fiscal policy taking precedence over monetary policy [1].
TD Securities maintains its 2026 GDP forecast for China at 4.6%, stating that the negative effects of the oil price shock are likely to become apparent later in the year. The firm believes that Chinese authorities possess sufficient fiscal capacity to counteract these challenges [1].
Additionally, Loo warns that if Trump cancels his trip to China, markets may interpret this as a deterioration in US-China relations, potentially prompting US officials to adopt a more aggressive stance, such as re-imposing tariffs, which could unsettle financial markets [1].
CONCLUSION
China’s strong economic start to 2026 is threatened by rising oil prices and uncertain US-China trade relations. While TD Securities expects fiscal measures to offset some risks and maintains its 4.6% GDP forecast, market sentiment remains cautious due to the possibility of renewed tariffs and external shocks.