Our economic outlook for China

China’s economy remains increasingly K-shaped. Resilient exports, supported by demand for AI-related goods, helped industrial production recover in August. But consumption weakened and investment remained a substantial drag, particularly in infrastructure and property sectors. Modest home-price gains in the largest cities have not spread nationwide, with housing sales and real estate investment continuing to contract.

We expect exports to remain a near-term source of support, but they’re unlikely to fully offset domestic weakness. Household deleveraging, property-related wealth losses, and a soft labor market are weighing on consumption, while the property downturn and constrained local government finances continue to restrain investment. Trade barriers and a potential moderation in global AI investment add to the risks of relying on external demand. We expect growth to have remained subdued in the third quarter before improving modestly in the fourth quarter as fiscal support begins to reach the real economy.

Policymakers have begun to accelerate fiscal deployment and introduce targeted lending and housing support. These are positive steps, but their narrow scope and implementation lags make them unlikely to deliver a broad-based recovery on their own. More effective fiscal execution and stronger follow-through will be critical, particularly for stabilizing the property sector. We expect the People’s Bank of China to maintain ample liquidity and favor structural tools that direct credit to priority sectors, with broad-based policy rate cuts less likely in the near term.