China: Exports strengthen, domestic demand softens
External trade momentum was strong in August, driven by surge in high-tech export demand.
Group Research - Econs15 Sep 2026
  • Industrial activity improved, supported by robust export-related production.
  • Consumption, investment and credit demand stayed subdued.
  • Tightened presales home policy to weigh on property investment.
  • Market implication: We expect the 1Y LPR to hold at 3.00%, with fiscal support remaining key.
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China’s growth momentum stayed uneven in August, as strong external demand continued to largely offset soft domestic activity. The AI-electronics cycle sustained exports and industrial production, while consumption, investment and credit growth stayed muted.

Trade

External trade remained a key growth driver. Export growth edged up from 23.9% yoy in July to 25.0% in August. Integrated circuit and high-tech product exports surged 130.0% and 56.8% yoy, respectively, reflecting robust demand for AI-related electronics. Import growth rose to 28.2%, driven by intermediate goods purchases for export production. The AI-electronics upcycle should continue to support growth, though less favourable base effects may temper momentum.

Industrial production

Industrial activity proved resilient. Industrial production growth rose from 4.5% yoy in July to 5.2% in August, buoyed by strong exports despite soft domestic demand. High-tech manufacturing grew by 16.7% yoy, driven by the AI and electronics upcycle, which should continue to underpin high-tech and capital equipment production.

Fixed asset investment (FAI)

Investment sentiment stayed subdued. The FAI contraction widened from 6.7% yoy ytd in July to 7.2% in August, while state-owned and private investment fell by 3.6% and 10.1% yoy, respectively. Caution prevailed across most sectors. Local government spending should pick up modestly, supporting infrastructure investment and helping to cushion the broader FAI slowdown.

Property continued to drag on growth. Investment fell by 19.9% yoy ytd in August as developers prioritised completions over new starts. Residential inventory turnover remained at 33 months, continuing to weigh on prices and sales. China’s shift from presales to completed-home sales will likely curb near-term investment, land acquisitions, and project starts, especially among highly leveraged private developers.

Retail sales

Household sentiment stayed fragile. Retail sales slowed from 0.6% yoy in July to 0.4% in August, weighed down by big-ticket items such as luxury goods, automobiles, and furniture. High precautionary savings and falling property prices continued to constrain consumption.

Loans and deposits

Credit conditions are K-shaped. Outstanding loan growth slowed from 5.1% yoy in July to 4.9% in August, while new yuan loans fell sharply. Weak medium- to long-term corporate and household lending signaled cautious borrowing. Bond and equity financing rose among technology and new-economy firms. Direct financing helped firms offset tighter bank lending amid higher credit risk and limited collateral.

Inflation

Upstream price pressures strengthened amid tensions in the Middle East. PPI growth held at 3.8% yoy in August, while headline and core CPI inflation edged up to 0.8% and 1.0%, respectively. Higher oil prices and AI-related products drove the increase, while broader demand remained sluggish.

Conclusion

We expect the 1Y LPR to stay at 3.00% as the PBOC pursues measured easing. Resilient exports and industrial activity underpin growth, while soft domestic demand leaves the recovery uneven. With rates already low, policymakers will likely favour targeted liquidity measures over broad cuts. The front end should stay anchored, while firmer growth and inflation expectations gradually lift the long end.


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Mo Ji, Ph.D. 纪沫

Chief China Economist - China & Hong Kong 首席中國經濟學家 - 中國及香港
mojim@dbs.com

Nathan Chow 周洪禮

Senior Economist and Strategist - China & Hong Kong 高級經濟學家及策略師 - 中國及香港
nathanchow@dbs.com

 

Samuel Tse 謝家曦

Senior Economist- China & Hong Kong 資深經濟學家 - 中國及香港
samueltse@dbs.com

Byron Lam 林逢雋

Economist 經濟學家 - 中國及香港
byronlamfc@dbs.com

 


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