China's Two-Speed Economy: CPI Lags as PPI Rises on Exports

The International Monetary Fund on Wednesday raised its 2025 growth forecast for China to 4.6% from 4.4%, citing strong export performance and frontloaded infrastructure spending. The IMF cut its global growth forecast to 3%.

The two-speed economy – robust exports versus weak consumption and a prolonged housing downturn – is becoming a defining long-term feature, said Neo Wang, China strategist at Evercore ISI. Consumer sentiment remains subdued. Households continue to grapple with the negative wealth effect from the housing slump, Wang added.

The export-led resilience may reinforce Beijing's reluctance to roll out major stimulus for consumer demand. Policymakers are likely to refrain from new stimulus unless the slowdown persists beyond the conflict, said Gabriel Wildau, managing director at Teneo. He pointed to a Politburo meeting in late July as the next opportunity to escalate policy support.

For markets, the divergence between CPI and PPI keeps the yuan under pressure from weak domestic demand while export earnings provide a floor. Bond yields may stay low on subdued inflation expectations, while export-oriented industrials and tech hardware stocks could outperform consumer sectors, analysts said. The Politburo meeting in late July is the next scheduled catalyst for policy direction. For more on how macro divergence shapes asset allocation, see our market analysis.