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China's strong export-oriented sectors and policy-supported investment are helping cushion weak domestic demand and uneven private-sector activity, Fitch Ratings said, even as the economy recorded resilient growth of 4.7 per cent in the first half of 2026.
According to Fitch, China's economic performance is increasingly marked by a widening divergence between externally oriented sectors and domestic-facing industries. Export-oriented industries, particularly electric vehicles, batteries, advanced manufacturing and segments of the technology supply chain, continue to benefit from strong global demand. Artificial intelligence-related investment is also supporting economic activity across computing infrastructure, data centres and electricity supply, broadening the credit benefits of China's industrial upgrading, the rating agency said. Fitch also highlighted the growing strategic importance of reliable power supply for China's energy security and AI infrastructure expansion. However, domestic-facing sectors continue to face a challenging operating environment. Household consumption remains constrained by weak labour-market conditions, subdued consumer confidence and the ongoing correction in the property market. Private investment has also remained weak. Fitch said excess capacity and intense competition were weighing on pricing power and profit margins across several domestic-facing sectors. Weaker income expectations and continued weakness in the property market have further eroded household confidence, encouraging greater caution in both consumption and investment. The macro-financial environment remains broadly supportive, with accommodative monetary conditions, targeted fiscal support and continued management of capital flows helping to contain volatility despite geopolitical uncertainty and higher energy costs. However, the sustainability of China's external growth remains a key uncertainty. Fitch warned that rising trade frictions, tariff risks and a slowdown in global demand could test the resilience of export-oriented sectors. A narrowing of the external growth cushion could increase pressure on domestic demand and require greater policy support to sustain economic activity, the rating agency said. The report noted the growing importance of China's external sector and industrial upgrading in supporting economic growth at a time when domestic consumption, private investment and the property market continue to face structural challenges. (ANI)
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