China’s GDP grew by 5% in Q1 of 2026, hitting the upper bound of the government’s full-year growth target. However, a closer look at the “troika” (consumption, investment, and exports) driving the economy reveals that while consumption recovery has fallen short of expectations and investment momentum continues to slow, exports have maintained robust growth, emerging as a crucial pillar of the economy. This divergence has once again brought China’s chronic imbalance between domestic and external demand to the fore.
The Chinese economy is currently demonstrating a trend of “strong exports, weak domestic demand.” Between January and May 2026, yuan-denominated exports experienced a significant increase of 11.8%. In contrast, the recovery in domestic consumption has been noticeably slow, with total retail sales of consumer goods rising by only 1.4%. Investment faces an even steeper challenge, as the growth rate of fixed-asset investment swung into negative territory at -4.1%.
According to the latest statistical data, export growth rates for rare earths, integrated circuits, automobiles, and high-tech products continue to accelerate, signaling that China’s export structure is shifting toward high-value-added goods.
Meng-Chun Liu, Director of the China Economic Research Institute at the Chung-Hua Institution for Economic Research (CIER), pointed out that China’s robust export performance in recent months may be partially linked to the conflict in Iran. Anxious about potential hikes in future raw material costs, overseas manufacturers have resorted to early stockpiling and hoarding of components. Whether this wave of export growth is sustainable remains to be seen.
It is also worth noting that as Chinese products flood the globe, trade frictions with various countries are on the rise. Chia-Hsuan Wu, Deputy Director of the China Economic Research Institute at the CIER, noted that according to statistics from the China Trade Remedy Information Network, foreign anti-dumping and countervailing cases against China exceeded 100 in 2025, higher than in previous years. Moreover, these actions are not only originating from advanced economies in Europe and the U.S. but are increasingly being initiated by emerging markets such as India.
Addressing the persistently weak consumption momentum, Director Liu argued that the core issue lies in public confidence. Real estate constitutes a significant portion of Chinese household wealth, which means that the current property slump has far-reaching effects. Not only does it hinder economic growth, but it also fosters a sense of pessimism about the future economic outlook, job opportunities, and income stability. As a result, many citizens are increasingly inclined to save their money rather than spend it.
Regarding the decline in investment, Chinese authorities explained that, excluding real estate development, project investments continued to grow. Notably, the rollout of computing power networks and next-generation communication networks has accelerated, while investments in related industries—such as information transmission, aviation, aircraft manufacturing, integrated circuits, information services, and lithium batteries—have all maintained relatively rapid growth.
In response, Deputy Director Wu analyzed that while Beijing has aggressively pushed to replace real estate with emerging industries as the new engine of economic growth, this goal will likely be difficult to achieve in the short term. Manufacturing investments often take years from initial capital injection to yield tangible returns, whereas the fallout from the property downturn—impacting investment, consumption, and employment—is immediate. Compounding this, the limited job-creation capacity of high-tech industries makes it challenging to fill the void left by the real estate sector.
Deputy Director Wu mentioned that although the government has emphasized a balance between supply and demand in recent years, actual policies remain heavily skewed toward manufacturing and the supply side, with relatively insufficient effort directed at improving the demand side. In particular, massive state subsidies channeled into advanced manufacturing, semiconductors, and AI have further widened the development gap between emerging and traditional industries.
Deputy Director Wu also highlighted a noteworthy shift in the 15th Five-Year Plan: a new emphasis on “investing in people” rather than solely in industries. She projected that more resources will be directed toward public service sectors such as healthcare, education, and eldercare. If effectively implemented, such policies would be more conducive to resolving the weak domestic demand than mere consumption subsidies.
Source: Economic Daily News (June 23, 2026). China’s Exports Surge, but Weak Consumer Spending Highlights a Growing Economic Divide. Economic Daily News. https://udn.com/news/amp/story/7333/9579838