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China PMI beats, but fiscal stimulus is fading

Published on March 31, 2026

Michael Hirson

Houze Song

China March PMI slightly beat consensus, with the manufacturing PMI at 50.4 (vs. 50.1 survey) and non-manufacturing PMI at 50.1 (vs. 49.9 survey). Despite the better-than-expected headline numbers, the details suggest moderating growth momentum.

The Manufacturing PMI’s improvement (50.4, vs. 49 in Feb) largely reflects post-Lunar New Year activity resumption and February’s low base. While PMI input and output prices both rebounded, input prices (63.9) rose significantly more than output prices (55.4). This suggests that while higher energy prices will help China reflate, they will likely be growth-negative as it means a margin squeeze for industry.

The Services PMI was marginally expansionary at 50.2. More worryingly, services employment was only 46.2 and has been trending down since December. The service sector is the largest source of employment in China. The average employment reading across the main PMI indices is also not showing signs of improvement (46.9 vs 47 in Feb). The weak labor market remains a key headwind for household consumption.

The Construction PMI (49.3) contracted for the third month in a row, with construction new orders only 43.5. This weakness is further evidence that the fiscal boost to start the year was transitory, and peak fiscal stimulus is behind us:

There was a -5.3% y/y decline in 2025 Q4 fiscal expenditure, which created a favorable low base for q/q fiscal expenditure growth in 2026 Q1.
Government bond issuance and spending surged in Jan-Feb but is now slowing down. March government bond net issuance (excluding debt swaps) is 460 billion yuan smaller than March 2025 (see Figure). In year-to-date terms, total government bond net issuance is 2.26 trillion yuan, 345 billion yuan smaller than the same period 2025.
As Beijing’s 2026 fiscal budget is restrictive (link HERE), our base case is that fiscal expenditure —and broader growth momentum—will moderate in Q2 after a rebound in Q1.

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