One obvious read-across from the US-China trade “truce” is less urgency in Beijing to implement big-ticket fiscal stimulus.

You know the story. Or you should. Domestic demand in China is quite weak. Legacy drag from the property crash and the long shadow of Xi Jinping’s “common prosperity” campaign continue to weigh on the consumption impulse, and most observers believe the country’s experiencing some manner of balance sheet recession.

Rather than address the problem — and to be fair, balance sheet recessions aren’t easy to address once they get rolling because there’s a psychological element to them — Xi opted instead to prop up growth with exports. One consequence of subdued domestic consumption is overcapacity. Fortunately for Xi, we live in a world where global demand for cheap goods is more or less insatiable, so China was able to foist its excess capacity on the rest of the world.

Donald Trump’s second-term tariffs were supposed to put an end to that, but as it turns out, Trump didn’t have the fortitude to sustain a de facto trade embargo. By postponing the US-China trade war for 90 days, Trump’s all but guaranteed another export bonanza for China as buyers around the world front-load shipments and otherwise pull forward purchases to ensure they have enough stock for the holiday shopping season.

Good news for China? Well, yes and no. “Yes,” in that Beijing clearly got the better of Trump, who overestimated his leverage. But “no” in the sense that China desperately needs to resuscitate domestic demand. The trade truce is just another excuse for Beijing to kick the can down the road on fiscal stimulus.

That’s the context for activity data out of Beijing, where Xi’s statisticians said Monday that retail sales grew 5.1% last month, slower than March’s pace and a miss to consensus. Industrial production, meanwhile, grew 6.1%.

Although the gap narrowed, April marked the 16th consecutive month during which industrial production growth outstripped consumer spending growth.

The retail sales breakdown showed yet another enormous jump (nearly 40%) in spending on home appliances, a reflection of Beijing’s subsidy initiative. But as SocGen’s Wei Yao and Michelle Lam noted, “only about one-third of the CNY300 billion in subsidies have been utilized, point[ing] to the need to step up stimulus at some point later in the year.”

The problem, though, is that Beijing’s still putting Band-Aids on bullet wounds. The combined hit to consumer sentiment from the property crisis, the pandemic and Xi’s social engineering programs was dramatic. Fixing it isn’t as simple as subsidizing washing machines. You have to address people’s deep-seated anxieties, and that’s not possible in this context because even if they won’t say it out loud, many Chinese are disillusioned with the leadership, which looks more like one-man totalitarianism than one-party government.

I can hear the protestations now: If you actually go to China, you’ll discover a vibrant society that’s in many ways better than America, and very much contrary to Western narratives, Chinese shopping malls are bustling. I don’t doubt any of that. What I do doubt, though, is the notion that given a vote, anyone would choose iron-fisted dictatorship over other forms of government. No one likes being told, “Shut up or I’ll kill you.” And make no mistake, that’s Xi’s China.

For 30 years, the CCP and the Chinese populace maintained an implicit social compact: Steady quality of life improvements in exchange for acquiescence. It was still a coercive relationship, of course, but at the risk of trivializing the plight of an oppressed people, the CCP governed by a kind of consent. With Xi, that’s not necessarily the case. Sure, he intends to make life better for Chinese and I have no doubt he takes that responsibility seriously. But… well, suffice to say he’s going to rule China regardless.

You’re never going to get an organic recovery in domestic demand under those political conditions. People will remain disenchanted in perpetuity and the frustration that goes along with not being allowed to express that disenchantment will only breed contempt and more disaffection.

Note that Chinese banks extended just CNY285 billion of new loans last month. That was down more than 60% YoY, and counted as a wild miss to the CNY700 billion consensus. The growth rate for the outstanding loan stock continues to hit record lows, a testament to the notion that cutting rates amid a balance sheet recession is pushing on the proverbial string.

An imminent collapse in exports tied to Trump’s tariffs might’ve forced Xi’s hand on the fiscal stimulus front, but now that incentive’s gone too — or at least delayed until early August. As SocGen’s Lam put it, “probable export front-loading during the 90-day US-China tariff truce suggests we may not see sizable weakening in overall economic momentum until mid-Q3” which means “Beijing will likely continue to withhold any significant increase in stimulus in the short-term.”

In the same note, Lam described “a constant choice between maintaining economic stability and preserving policy room for worse outcomes.” That’s an incisive assessment. My concern for the Chinese people is that “economic stability” means something different to Xi than it might’ve to his predecessors.

At the least, it’s fair to say Xi’s ready and willing to subjugate quality-of-life gains for everyday people to strategic priorities he views as mission-critical in the context of a destiny-driven national narrative. And that narrative’s increasingly bound up with his own legacy-building exercise.

What Xi should be focused on is facilitating China’s path down the road to advanced economy status. Instead, he seems content to put a floor under growth. To do just enough that the populace remains pacified, leaving him free to pursue a kind of ascetic personal glory. Call it self-aggrandizement with Chinese characteristics.