in brief: the K-shaped economy and a widening trade fight set July's frame. Wang Yi toured the Nordics as NATO recalibrated in Ankara, and a bigger move came in AI governance: WAICO, the first intergovernmental body dedicated to AI, launched in Shanghai with 29 mostly Global South members. Growth slowed to 4.3 percent in Q2 and retail sales barely moved, sharpening debate over whether the divide is cyclical or structural. The Politburo's response was rhetoric over money—no new funding, deficit or rate move announced.
15th 5-year plans kept rolling regardless: blueprints for carbon peaking, renewables, the circular economy, a Beautiful China and national health all set 2030 targets. Trade ran hottest of all: exports hit a four-month high, Beijing sanctioned 14 EU firms, and anti-involution hardened into a '1+1+N' pricing framework aimed at firms too private to simply order into line.
macro: the K-shape sharpens
Two speeds, one economy: H1 GDP grew 4.7 percent y-o-y, slowing to 4.3 percent in Q2, while industrial output rose 5.4 percent, retail sales crept up just 1.3 percent and fixed-asset investment fell 5.7 percent, widening the gap between production and demand.
Debate over this ‘K-shaped economy’ intensified in July, asking whether the divide is temporary or here to stay. One camp points to AI, exports and high-end manufacturing as the economy’s fast-growing arm, but says it employs too few people and pays out too little in wages to lift household incomes more broadly. Another argues this arm is simply too small to outweigh the weakness everywhere else, in property, consumer spending, investment, jobs and local government finances. Either way, both sides land on the same diagnosis: people and firms are not spending enough to keep growth at full strength, and neither camp has an easy fix.
The closely watched 30 July Politburo meeting called for ‘pragmatic and effective’ incremental policies and stronger counter-cyclical adjustment to shore up demand, moving beyond April’s emphasis on fully using existing tools. No new funding envelope, deficit change or interest-rate move was announced, but the language points to fiscal spending arriving first, faster use of already-issued bond proceeds and a harder push on equipment-renewal and consumer trade-in subsidies, with monetary easing the more likely next step. For now, Beijing is choosing words over money.
Other, narrower measures also moved forward this month. The China Securities Regulatory Commission made it easier for listed firms to raise capital, letting them complete several private placements under a single filing and raising the cap on fast-track refinancing approvals. Tax authorities eased the cost of corporate mergers and divisions, cutting the up-front tax and cash-flow burden of restructuring. Offshore trusts also came under tighter rules: retained income is now taxed annually as if held directly by the person who set up the trust, closing a route PRC residents had used to defer tax on income earned abroad.
consumption: big plans, tight purse
The new 5-year plan on consumption, arriving amid weak Q2 numbers, sets a 2030 target of C¥60tn (~US$8.88tn) in retail sales, some 20 percent above 2025, part of a rebalancing away from exports and investment and towards household spending that Beijing has promised for years, with little to show for it so far. A section on lifting wages, social security and public services, alongside renewed emphasis on aged care, health and education, sits awkwardly against Beijing’s current tightening stance, though some stimulus may still follow. Industry, meanwhile, has problems of its own making.
industry: narrow profits, tighter prices
Industrial profits grew strongly in H1, up almost a fifth year-on-year, but the gains were narrow. Raw-material manufacturers, particularly non-ferrous metals and oil-linked sectors, accounted for most of that growth, with profits there up more than 70 percent. Factories are running further below full capacity than a year ago, and property remains the biggest drag on demand, with developers still cutting back on investment, new construction and sales, despite repeated rounds of state support.
The PRC market regulator, SAMR (State Administration for Market Regulation), moved to put teeth into the anti-involution campaign, Beijing’s term for the overcapacity and price wars riling trading partners abroad. A ‘1+1+N’ framework combines amendments to the Price Law, revised rules on below-cost dumping and industry-specific cost-accounting standards. Still incomplete, together they would let regulators identify below-cost pricing, what the West calls dumping. Unlike 2015’s SOE-led steel and coal cuts, these are mostly private firms Beijing cannot simply order to scale back, so the export glut in solar panels, EVs and batteries may persist regardless.
Photovoltaics shows how the ‘N’ could work in practice. A new association group standard, developed under SAMR and industry ministry guidance, standardises costs across polysilicon, wafers, cells and modules, from cash and production cost through to full cost, including idle-capacity depreciation. The standard is voluntary and does not ban low pricing; it creates an auditable reference that could inform tenders, monitoring and enforcement, and gives regulators their first test case.
trade: exports firm, rules tighten
renewed debate on the trade surplus
Exports climbed 27 percent year-on-year in June, the fastest pace in four months; imports rose even faster, more than a third, to a five-year high. Trade’s lift to growth matters more to Beijing now that other engines, such as investment and consumption, are weakening, but that reliance sits against the anti-involution drive above: some of the export strength almost certainly rests on the same underpriced output regulators say they want to curb. In June alone, the trade surplus widened to US$125.6bn, the highest since January 2025. The year-to-date trade gap was slightly narrower than a year earlier, as imports have outrun exports for several months.
This trade imbalance has stirred fresh debate among PRC economists. A strong surplus is proof of the PRC’s competitiveness that Beijing should reinforce, declares Wang Yongli 王永利 of China International Futures Co., who dismisses calls for Beijing to run deficits to support renminbi outflows. A persistent surplus represents sustained net outflows of real resources and depresses domestic consumption, argues Zhang Yansheng 张燕生 of the Chinese Academy of Macroeconomic Research, doubling down on his dovish position and again urging Beijing to set up a body coordinating exports and overseas investment to ease trade frictions. A Caixin feature translated the debate into specifics, interviewing several PRC experts who called for cutting export tax rebates and redirecting the savings to households. Still, analysts advise that any change be gradual, sector-specific and, above all, predictable, a tall order given how fast the politics around trade are moving.
strengthening trade and investment policy levers
Trade tensions with Brussels flared in July. Beijing sanctioned 14 EU firms spanning defence, optics and machinery on 24 July, matching the EU’s own sanctions one day earlier on 14 firms from Hong Kong and mainland China tied to allegations of helping Russia evade export controls. PRC exporters, and any third party, are barred from supplying the listed firms with dual-use items.
A new draft e-Commerce Law would let the PRC take countermeasures against ‘discriminatory’ e-commerce restrictions abroad. Released three days after the EU’s e-commerce parcel duty took effect, and with further curbs reportedly in the pipeline, it signals Beijing will respond in force if provoked. In also tightening market discipline among firms, the law echoes June’s ‘Regulation on outbound investment’.
New rules on foreign labour cooperation point the same way. Amid a rising number of Chinese workers posted overseas, they tighten visa oversight, penalise unlicensed intermediaries and require State Council approval for certain dispatches to specific countries or risky projects, another sign Beijing treats firms’ overseas presence as an extension of the domestic economy, supervised just as closely.
The Ministry of Commerce released a position paper pushing back against Western claims of overcapacity, not least the US’s recent trade probe. The surplus reflects PRC firms’ competitiveness and integration into global supply chains, it argues, rather than deliberate distortion, noting no internationally agreed definition of overcapacity exists and that low industrial capacity utilisation is only one metric among several. Left unaddressed, though, is PRC firms’ declining profitability. Beijing’s proposed fixes, market opening and WTO reform, do not explain how either would shrink excess capacity. Still, the pushback shows trade imbalance now sits high on Beijing’s own policy agenda.
geopol: Nordic diplomacy, a NATO in transition
From 2–8 July, Foreign Minister Wang Yi 王毅 completed a four-nation Nordic tour, to Denmark, Sweden, Finland and Norway, covering economic cooperation, the green transition, trade and innovation.
PRC international affairs analysts closely watched NATO’s 36th summit, held in Ankara, Türkiye, on 7–8 July. Sun Chenghao 孙成昊 of Tsinghua University’s Centre for International Security and Strategy said the gathering, while not the most dramatic in recent years, most clearly shows the alliance’s shift towards what he calls ‘NATO 3.0’: unlikely to collapse or revert to its old form, but evolving into one that is militarily stronger and politically more complex.
energy: carbon peaks, renewables rise
The 15th 5-year plan for carbon peaking targets a 17 percent cut in carbon intensity, how much CO2 the economy emits for each unit of GDP. To get there, Beijing is leaning on provinces to share power with each other, switching to cleaner coal, retrofitting industry to save energy, moving heating, cooling and lighting towards low and zero-carbon sources, building cleaner transport corridors, and expanding capacity for its wider dual-carbon program.
The 15th 5-year plan for renewables shifts the focus from simply expanding renewable capacity to boosting how much of it actually gets used. On the demand side, that means pushing new green technologies such as new-energy heavy trucks, green chemicals and zero-carbon factories. On the supply side, energy companies will need to certify green power use and offer households their own green power packages. Renewable capacity is set to rise from about 48 percent to 50 percent of the national total, a large increase in absolute terms, but only just enough to keep pace with the PRC’s growing appetite for power.
environment: plans widen, scope grows
The 15th 5-year plan for a circular economy aims to squeeze more economic output from each unit of water, energy and other key resources, through greener product design, retrofitting heavy-resource industries and cutting excess packaging and waste. The 15th 5-year plan for a Beautiful China widens its predecessor’s scope beyond air, water and soil. Local officials will now also be judged on water quality, waste dumping and night-time noise. The rollout is backed by 20 major projects covering these areas plus ecological risk monitoring, biodiversity and stronger governance capacity, the unglamorous plumbing behind Beijing’s green ambitions.
ag: resilience through tech
The PRC’s agriculture sector focused on supply resilience and technology upgrading in July. Record soybean arrivals, together with renewed US purchases and restored Australian rapeseed access, are diversifying the PRC’s oilseed imports and easing reliance on any single supplier. Summer grain output passed 300 million tonnes for the first time, driven by better seeds, farmland quality and technology.
AI is moving closer to the farm. The ‘Mazu’ weather service, combining satellite data and forecasting models, is set to expand to 30 countries to help manage climate risk in agriculture, one of several tools showcased at the July World AI Conference 2026 in Shanghai. Separately, new rules on Essentially Derived Varieties (EDVs) strengthen intellectual property protection for seed breeders, aiming to encourage more investment in breeding innovation.
Beef supply tightened as cattle numbers and output fell and import costs rose.
scitech: booster lands, network plots
The PRC made a first recovery of an orbital-class booster, when the Long March 10B landed its first stage at sea on its 10 July maiden flight, ten and a half years after SpaceX’s Falcon 9 first did so. Recovery is not yet reuse: a reflight before year-end will test the economics, and commercialisation remains some way off. Still, the PRC is set to become only the second reusable-launch power, and likely the only other this decade.
Two new rules chart the PRC’s network roadmap to 2030: a 13 July guidance setting 16 tasks on IP addresses, domain names and identifiers, and pushing AI agents towards networked collaboration and satellite internet; and a CAC (Cyberspace Administration of China) 2026–30 IPv6 implementation plan, from 21 July, targeting 900 million active users and 38 percent of network traffic by 2027.
governance: AI's rules, Beijing's bloc
World AI Cooperation Organisation, headquartered in Shanghai and founded on 16 July with 29 states, is the first intergovernmental body dedicated to AI, most of its members from Asia and Africa alongside Russia, Brazil and other Global South countries; the US, UK and most of the EU stayed away. Xi Jinping 习近平 framed AI as a public good in his keynote, championing open source and casting WAICO as a governance bloc for the Global South, running parallel to the US and EU frameworks.
New rules on AI companion apps took effect on 15 July, covering chatbots built for sustained emotional interaction rather than ordinary customer service; providers must verify users’ ages and are barred from offering minors any AI ‘virtual partners’ or ‘virtual relatives’. The same day, CAC approved its first batch of on-device AI services for smartphones, including Apple Intelligence, alongside services from Huawei, Xiaomi and Samsung. The approvals formed part of 120 newly registered AI services in May and June and 988 in total by 30 June.
social policy: health plan, silver support
Beijing released the 15th 5-year plan for national health, setting out 24 priority tasks through 2030. It reflects a shift in the PRC’s disease profile, from infectious diseases towards chronic non-communicable diseases, said Chen Jian 陈剑, executive director of Healthy China Forum. It also elevates the health industry to the status of a strategic engine of the national economy for the first time, Chen added.
To support the silver economy, Beijing is upgrading the rehabilitation devices industry. It focuses on six to eight priority sectors, including brain-computer interfaces, rehabilitation and care robots, prosthetics, orthotics and hearing aids, while targeting breakthroughs in at least 50 key technologies and products.