Robust H1 performance confirms China's stabilizing role

China's economic performance in the first half of 2026 demonstrated its growing resilience against external headwinds, such as disruptions in the Middle East, tariffs and sanctions.

The country's GDP reached 69.57 trillion yuan ($10.3 trillion), up 4.7 percent year-on-year, keeping it on track to meet its full-year growth target.

While second-quarter growth moderated to 4.3 percent following a stronger 5 percent in the first quarter, industrial output, retail sales and services all continued to expand. Furthermore, urban unemployment eased to 5 percent in June, while per capita disposable income rose 5.2 percent. Notably, the GDP deflator has turned positive after 12 quarters of deflation.

New growth drivers, such as high-end manufacturing, the digital economy and modern services, which capitalize on speed, scale, and technological integration, contributed over 40 percent of first-half growth.

The World Bank projected a steady 4.4 percent growth for China in 2026, noting that high-tech investment rose 4.5 percent year-on-year in January-May. The OECD has forecast 4.5 percent growth, citing strong semiconductor production and exports.

China's foreign trade reached a record high of 25.47 trillion yuan during the first half of 2026, the impressive 16.9 percent year-on-year growth reinforcing China's status as the world's leading goods trading nation. A key feature was a shift in trade dynamics. With the growth in imports outpacing the growth in exports, China has made substantial progress toward a balanced trade structure and increased consumer demand.

The transition to new growth drivers was decisive. Mechanical and electrical equipment exports saw a 20.1 percent increase, accounting for 63.5 percent of all exports. High-tech exports surged by 39 percent while AI and computing components posted double-digit growth due to global data center construction. Exports of electric vehicles grew by 68.7 percent, lithium-ion batteries increased 37.6 percent, while export volumes of wind turbines and associated green power generators shot up 35.6 percent.

Nextgen green mobility exports of railway locomotives grew 45.1 percent and electric motorcycles and bicycles rose by 31.5 percent. China exported over 10,000 units of AI-powered intelligent bionic robots to more than 90 countries and regions. Exports of medical and surgical robots grew 3.3-fold to 480 million yuan, expanding their markets from 23 countries to 49 in 12 months.

For 17 consecutive years, China has been the world's second-largest import market, accounting for roughly 10 percent of global import demand.

By granting zero-tariff treatment to 63 developing nations, the Chinese market facilitated import growth from more than 150 countries and regions.

Trade with Belt and Road countries rose 14.8 percent to 12.97 trillion yuan, representing 50.9 percent of China's total foreign trade volume. Trade with Africa rose by 19.6 percent, Latin American trade expanded by 16.2 percent, and commerce with regional neighbors jumped 20.6 percent to 9.44 trillion yuan.

Trade with the European Union also registered a solid 10.2 percent increase. Foreign-invested enterprises and multinationals remain highly integrated within this ecosystem, shifting from "manufacturing in China" to "innovating in China".

While the European Central Bank notes that stronger Asian emerging economies, including China, lifted global momentum, French Finance Minister Roland Lescure says China is "underconsuming", the US is "over-consuming" and Europe is "under-investing". Banque de France Governor François Villeroy de Galhau has called for Chinese investment in Europe that creates local value and supports technology transfer. Germany's Finance Minister Lars Klingbeil says Germany is "not afraid of competition, but it needs to be fair".

Malaysia and Singapore have pointed to spillover effects from weaker demand, tariffs, and supply-chain disruption. Nevertheless, the global market's deep reliance on China's high-value, tech-driven exports creates mutual interdependence, rendering complete decoupling economically unfeasible.

China and the Association of Southeast Asian Nations are each other's largest trade partners, which means any domestic slowdown would quickly impact Southeast Asia through trade demand, supply chains and commodity prices.

However, China's strong first-half performance has provided a vital economic buffer. Indonesia's trade with China rose in early 2026, Cambodia's total first-half trade with China exceeded $11 billion, and Thailand's export sector is projected to grow 8 percent to 10 percent driven by electronics and AI-related demand.

China's first-half performance in 2026 confirms the wisdom of transitioning to new growth drivers and strengthening resilience built on innovation. Its robust GDP growth of 4.7 percent reflects nuanced fiscal support and policy responses to external disruptions and domestic challenges in the property sector as consumption remains soft.

The underlying story, however, is one of sustained growth. As the 15th Five-Year Plan (2026-30) begins, the central task for the second half of 2026 is to localize policy inputs, maintain fiscal flexibility and balance domestic property and consumption challenges with export and manufacturing strengths.

The author is the chair of BRCP Geopolitical Risk Advisory, publisher of The Chair Media Group, and visiting professor at ICES, France.

The views don't necessarily reflect those of China Daily.

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