20260818-招银国际-China_Economy_Policy_support_to_remain_moderate_albeit_with_broad_slowdown_8页_1001kb

China Economy Summary

Core Content

China's economy continues to show a moderate slowdown in the second half of 2026, with key indicators reflecting a weak domestic demand environment. The growth trajectory remains subdued, driven by a contraction in consumption, property, and fixed asset investment, while exports and manufacturing show relative resilience.

Main Points

• Economic Growth:

  • 2026 GDP growth forecast remains at 4.6%, with a moderation from 4.7% in 1H26 to 4.3% in 2H26.
  • The economy is on a weak domestic-demand trajectory, with retail sales, fixed investment, and property all underperforming expectations.

• Consumption Weakness:

  • Retail sales grew 0.6% YoY in July, below market expectations of 1.3%, and YTD growth eased to 1.2%.
  • Consumer confidence dropped to 89.4, and the precautionary savings rate rose to 40.6% in 1H26.
  • Key categories such as home appliances, furniture, and automobiles saw significant declines in sales, with autos down 17.0% YoY.
  • A durable recovery requires stronger service-sector job creation, credible property stabilization, and income support with a high propensity to consume.

• Property Market:

  • The property market remains deeply contracted, with GFA sold YTD in July down 11.8% YoY.
  • Tier-1 cities showed a stronger rebound, but tier-2 and tier-3 cities saw a sharper decline.
  • New housing sales dropped 13.3% YoY in the first half of August, with recovery rates compared to 2018-2019 at a historic low of 29.7%.
  • Second-hand housing sales in 11 selected cities also moderated, with 2.1% YoY in the first half of August.
  • Property-related sectors are expected to remain subdued, and further support for urban village renewal, excess-inventory purchases, mortgage easing, and transaction-fee reductions is anticipated.

• Investment Trends:

  • Urban fixed-asset investment (FAI) fell 6.7% YTD in July, weaker than market expectations of -6.1%.
  • Property development investment declined 19.2% YTD, while manufacturing investment fell 1.7% YTD.
  • Infrastructure investment also weakened, with YTD decline of 4.1%.
  • Investment in AI hardware, other transport equipment, and computers/electronics showed strength, while autos, special equipment, and chemical manufacturing saw declines.
  • The slowdown in investment reflects caution due to weak demand durability, profitability concerns, and excess capacity.

• Industrial Output:

  • Value-added industrial output (VAIO) rose 4.5% YoY in July, below market expectations of 4.9%.
  • Manufacturing growth eased to 5.5%, while export delivery value slowed to 10.4% from 14.8%.
  • Sectors such as computers/electronics, transport equipment (excluding autos), and special equipment showed strong growth, while non-metallic minerals, chemicals, and non-ferrous metals were weak.
  • Auto manufacturing rose 8.7% YoY, but auto retail sales fell 17.0% YoY, indicating reliance on exports and inventories.

• Policy Support:

  • Policy measures are targeted stabilization rather than broad easing.
  • The State Council reinforced the Politburo's direction, focusing on faster fiscal deployment, stabilization of investment in the "six major networks," and support for emerging industries.
  • Limited support for consumption and property is expected, as 2H26 GDP growth of 4.3% is sufficient to meet the 4.5% full-year target.

• Equity Performance:

  • Equity performance is expected to remain highly polarized.
  • Sectors with greater earnings visibility, such as AI hardware, innovative pharmaceuticals, and new-energy equipment exporters, are likely to outperform.
  • Discretionary consumption and property-related sectors are expected to remain subdued.

Key Figures

Indicator	1H26	2H26	Forecast
GDP Growth	4.7%	4.3%	4.6%
Retail Sales	1.0%	0.6%	0.2%
Urban FAI (YTD)	-1.7%	-6.7%	-6.7%
Property Development (YTD)	-19.2%	-19.2%	-19.2%
Manufacturing (YTD)	-1.7%	-1.7%	-1.7%
Infrastructure (YTD)	-4.1%	-4.1%	-4.1%
GFA Sold (YTD)	-11.8%	-11.8%	-11.8%
GFA Started (YTD)	-24.0%	-24.0%	-24.0%
New Housing Sales Recovery Rate	29.7%	29.7%	29.7%
Second-Hand Housing Sales Recovery Rate	2.1%	2.1%	2.1%

Conclusion

China's economy is experiencing a slowdown, with policy support focusing on targeted stabilization rather than broad easing. While exports and certain high-tech sectors remain resilient, consumption and property markets continue to weaken, signaling a need for more effective measures to boost domestic demand and stabilize the property sector. The outlook for equity performance remains polarized, with AI-related and globally competitive sectors likely to outperform.