Our economic outlook for China

China’s economic activity has weakened broadly so far in the third quarter, amid a widening divergence between resilient exports and subdued domestic demand. Retail sales, fixed-asset investment, and industrial production have all fallen short of market expectations, even as export growth has remained robust. Housing prices in some of China’s largest cities have shown early signs of stabilization, while broader real estate conditions remain weak elsewhere, with nationwide housing sales and real estate investment continuing to contract.

Looking ahead, exports are likely to remain relatively resilient in the near term, supported by the ongoing global AI investment cycle and demand for technology-related goods. However, the outlook for external demand is becoming increasingly uncertain. Rising trade tensions—including tariffs and anti-subsidy measures—may not immediately affect the health of exports, but are likely to increase both the economic and political costs of relying on foreign demand to absorb excess domestic capacity. In addition, moderation in AI-related capital expenditure, tighter technology restrictions, or weaker global demand could weigh on one of China’s few remaining sources of growth.

Against this backdrop, policymakers are likely to shift policy implementation into a higher gear in the coming months as downside risks to growth continue to accumulate. We expect additional measures aimed at supporting domestic demand and stabilizing economic activity. Despite this, policy easing is likely to remain targeted and incremental rather than evolve into broad-based stimulus. We expect the People’s Bank of China to maintain ample liquidity conditions and rely more heavily on structural monetary policy tools to direct credit toward priority sectors. Broad-based policy rate cuts appear less likely in the near term.