Dhivya KM Dhivya KM is an intern at NIAS and is also a postgraduate student from the Department of Financial Economics, Madras School of Economics, Chennai.

On 07 July, the China Economic Update (July 2026), titled "Rebalancing Growth" was released by the World Bank in relation to macroeconomic events until June 2026. According to the report, although China continued to demonstrate resilient growth during the first quarter due to high-tech investment and exports, its pace began to fall during the second quarter due to disruptions in energy supplies worldwide as well as weak domestic demand.

The following are six key takeaways from the report. 

1. Growth slows on energy supply disruptions and weak demand as high technology sector booms
Growth was recorded at 5.0 per cent year-on-year in the first quarter of 2026 compared to 4.5 per cent in the previous quarter as a result of growth in the high technology investment sector and high exports. However, momentum in the second quarter slowed down due to shocks and energy supply, where it increased costs and uncertainties despite high reserves of oil and diversified energy sources and the imposition of caps on oil prices. According to the projections of the World Bank, growth will slow down to 4.4 per cent for 2026, further to 4.3 per cent for 2027 and 4.2 per cent for 2028.

2. Low consumption by weak households caused by high precautionary savings rate and underemployment
Consumption by households grew by only 2.6 per cent year-over-year in Q1, which is the lowest since the last quarter of 2022, because of the high savings rate, low house prices, and uncertainty about income, where the savings rate was 32.4 per cent compared to an average of 29.6 per cent before the coronavirus pandemic. In March, unemployment was 5.4 percent in urban regions and in May it declined to 5.1 per cent, while youth unemployment hit 15.6 per cent.

3. Adjustment within the property sector is slow as a result of financing shortfalls for developers
The real value of property has declined by 23 per cent from its high in July 2021. Sales are currently at only about half of their mid-2021 volume amid small policy-induced improvements within major cities. Property developer finance fell 21 percent in the year to May 2026, with domestic lending to developers falling 36 per cent. Even with the government's white-list effort putting more than RMB 7 trillion into viable projects, the World Bank estimates it will take 30 months to work through the current housing stock.

4. Export strength based on the global technology boom countered domestic fragility
The exports increased by 15.5 per cent year-over-year in dollar terms in January-May 2026, with high-tech manufacturing output rising by almost 31 per cent, boosted by electrical machinery and electronics due to the high demand for AI worldwide. This export performance allowed maintaining the current account surplus at 3.8 per cent of GDP in the first quarter, helped by the merchandise trade surplus above 5 per cent of GDP. However, the World Bank notes that export growth will moderate due to deceleration in global trade because of energy disruptions.

5. Fiscal space has tightened as land lease revenue fell and spending stayed investment-heavy
Land lease revenue contracted 28.7 per cent year-on-year over January–May 2026, compounding a multi-year structural decline and constraining infrastructure financing at the local level. Despite this, capital expenditure continues to account for 43 per cent of China's budget, compared with an OECD average of 13.5 per cent, while health, education, and social protection combined represent just 28 per cent, against more than 60 per cent across the OECD. The World Bank identifies reallocating spending toward social protection, rather than expanding its overall size, as the more consequential lever for durable rebalancing. 

6. The IMF’s medium-term growth projections support the need for consumption-based rebalancing
In the analysis of the World Bank, the latest Article IV Consultation report by the IMF expects medium-term growth in China to slow down to about 3.5 per cent by 2030 without any structural reforms owing to a declining workforce, reduced returns on investment, and slower productivity growth. The Fund views the adoption of consumption-based growth as the key policy focus in the context of the 15th Five-Year Plan, whereas the Chinese Government believes that growth at an average rate of 4.2 per cent until 2035 is enough to meet the country’s objective of becoming a mid-level developed economy. Both organizations agree on the view that making China’s social security system robust, and not investment-based stimuli, will decide the sustainability of its growth path. The IMF's medium-term growth outlook backs the case for shifting toward consumption-led growth.

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