The GBAI “current performance” index for business activity rose to 53.5 in Q1 from 50.7 prior – the highest since Q2-2024. Six of the eight index components rose quarter-on-quarter, and all previous sub-50 underperformers rallied back above the neutral mark, namely “capacity utilisation” (+3.2pts), “raw material inventory” (+9.0pts), “financing scale” (+3.2pts) and “profits” (+3.1pts).

The GBAI “expectations” index for business activity improved in tandem with its “current performance” counterpart, to 54.3 in Q1 from 52.9 in Q4-2024. Encouragingly, seven of eight expectation sub-indices rose quarter-on-quarter, led by a 3.1 percentage point increase in “profits” and a 2.8 percentage point increase in “raw material inventory”.

All the city sub-indices, be it “current performance” or “expectations”, rose quarter-on-quarter, with Shenzhen being the only exception. Hong Kong extended its rising “current performance” streak to four straight quarters, to 53.5; its “expectations” index jumped to 56.9 – bested only by Guangzhou – from 50.8 prior. Guangzhou’s current and expectation prints stood at 60.3 and 58.0, respectively, the highest among cities.

This showed that GBA companies weathered the initial rounds of US tariff hikes (10%+10%) well, in part thanks to the DeepSeek breakthrough lifting market sentiment as well as the rising prospect of more policy stimulus from China’s policymakers. However, respondents’ more-upbeat outlook in February-March (when the Q1 survey was conducted) likely did not prepare them for recent events – US’ announcement of sweeping and sizeable reciprocal tariff hikes on China and most other countries.

Kelvin Lau, Senior Economist, Greater China and North Asia, Standard Chartered, said: “Given the urgency to stabilise market sentiment following the tariff-induced sell-off, the likelihood of China cutting the reserve requirement ratio and/or policy rate (7-day reverse repo rate) in April has materially increased. We expect that both monetary and fiscal policies on the Mainland will stay supportive. Meanwhile, Hong Kong would need to ramp up short-term support to SMEs and continue to diversify its trade to facilitate more non-US trade corridors. Our next survey, to be conducted in May-June, should provide a better view of the readiness of GBA businesses to live with high tariffs.”

More consumption boosts welcomed

Looking ahead, 41% of respondents saw a positive impact from the consumption boosting initiatives announced by China in January. Meanwhile, 38% said the consumer goods trade-in programme would bring positive impact on their business. When asked what else the government could do to expand the consumption-supportive measures, the most popular suggestion was “relax market access for private sector and foreign investment to help boost services consumption”.

Wing Chu, Principal Economist (Greater China Research Team), HKTDC, said: “Boosting domestic demand is one of the government’s top priorities, as highlighted in the Government Work Report delivered by Chinese Premier Li Qiang in March.

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