Targeting Growth in China’s K-Shaped Economy
China’s uneven economy is producing sharply different outcomes across sectors, making selectivity even more important.
Key Takeaways
Chinese exports are accelerating in several technology-intensive and advanced manufacturing industries.
The property sector and domestic consumption are still struggling following the 2021 property downturn.
Active selection may help investors identify areas with stronger long-term growth potential.
China has become a global leader in manufacturing and technology. Yet growth across its economy appears increasingly uneven, or K-shaped. Exports and advanced manufacturing are expanding while the property sector and consumer activity remain softer.
Exports, for example, climbed 14.6% year over year during the first eight months of 2026, compared with 6.1% growth for all of 2025.1 Shipments of AI-related and high-tech goods were particularly strong, with exports of integrated circuits alone up 95.4%.
Industrial output also increased in August, with high-tech manufacturing up 16.9% year over year. Lithium-ion battery production rose 57.2%, while industrial robot production increased 34.6%.2
However, China’s domestic demand appears more subdued. Real estate – one of the country’s longtime growth engines – remains in a years-long downturn. Property investment fell by almost 20% in the first eight months of 2026, while fixed-asset investment declined by 7.2%.
For investors, these differing outlooks underscore the importance of stock selection. We believe that looking beyond the country’s aggregate performance and analyzing individual company performance can pinpoint exactly where durable growth is developing in China.
Where Is China’s Economy Showing Strength?
China’s export sector continues to gain momentum, especially in areas like technology and other advanced manufactured goods. Demand has increased for electronic components, computer parts, advanced equipment, lower-carbon tech, and AI-powered goods.3
Rising investment in AI infrastructure has particularly benefited companies exposed to semiconductor supply chains.
For example, Advanced Micro-Fabrication Equipment China (AMEC), which manufactures equipment for semiconductor manufacturing, reported a 300% year-over-year increase in net profits for the first half of 2026.4 Operating revenue grew by 35%.
Net profits at JCET Group, an outsourced semiconductor assembly and test provider, also surged by 79.4%.5
Global investment in electrification and renewable energy also supports China’s exports of batteries, electrical equipment and transformers.
Electric vehicles (EVs) exemplify this trend. In 2025, China manufactured roughly 75% of the world’s EVs.6
Chinese exports of new-energy vehicles (NEVs), which include EVs, hybrids and hydrogen fuel cell vehicles, doubled in 2025 on a year-over-year basis. Then, during the first six months of 2026, China exported almost as many NEVs as it did during all of 2025.7
Where Does China’s Economy Still Face Challenges?
Property Activity and Fiscal Effects
China’s domestic demand has yet to fully recover from the property sector’s sharp downturn in 2021.
After years of rapid growth, the government introduced rules to limit excessive borrowing in real estate. These rules accelerated the industry's deleveraging cycle. Several major developers subsequently defaulted, restructured or faced severe financial stress.
The crisis has had a broad economic impact because real estate and related activity have long served as reliable growth drivers. That contribution has fallen as property investment and construction have contracted.8 New housing starts have declined by more than 60% from pre-pandemic levels.9
Local governments also face tighter financial constraints because they had relied on land sales as a major revenue source.10 They now have fewer resources for infrastructure spending and other stimulus measures. According to one analysis, aggregate government spending has declined by 3% so far this year.11
Policymakers may be reluctant to spend more on stimulus due to higher government debt levels. Barclays estimates that government debt rose to 127% of Chinese GDP in 2025, compared with the government's reported 75%, and could climb to 146% by 2028. 12
Household Impacts
In the wake of the property downturn, Chinese consumer spending has slowed. Because real estate accounts for a substantial share of household wealth, falling home prices may have made consumers more cautious about spending.13
Additionally, the country faces a softer employment outlook, particularly among younger workers.14
Because China provides a relatively limited safety net, households already tend to save more than 30% of their disposable income.15 A tougher economy could prompt them to cut back further.
What Could Change the K-Shape Dynamic?
A Steadier Property Market
A recovery in the property sector could lift consumer confidence and potentially reverse the downturn’s negative wealth effects.
China’s government has taken several actions to stabilize its real estate market. These include financing to complete some unfinished projects and easing borrowing rules, such as lowering down payment requirements, among other steps.16
While price declines have moderated in some cities, the sector remains subdued.17
Rising Household Confidence
Stronger consumer spending could support domestic demand, making China’s economy more resilient and less dependent on a few sectors.
In recent years, China has invested billions in trade-in programs to boost consumer spending. The government says the programs generated $161.9 billion (1.1 trillion yuan) in first-half sales of cars, appliances, electronics and other goods.18
Overall, retail goods sales have remained muted so far this year and slowed further in August.19
A Stronger Safety Net
China is also gradually updating its social insurance and assistance programs. Earlier in 2026, the government announced plans for subsidized job training to address unemployment, as well as enhanced old-age insurance.20
If successful, these efforts might encourage consumers to save less and spend more, though a broader policy may be required to achieve the necessary impact.
Looking Beyond Broad Economic Trends in China
China is a large and complex market where we see considerable opportunity for growth-oriented investors – particularly in industries where companies have developed technological, production and innovation advantages.
At the same time, we believe it’s critical to be clear-eyed about areas of softness in its economy. Domestic consumer-facing industries continue to face challenging conditions, and it’s unclear when that will change.
In our view, China’s uneven growth strengthens the case for active management. In a K-shaped economy, fundamental research can help investors identify companies with durable advantages and attractive growth potential.
Authors
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Xinhua News Agency, “China's Foreign Trade Hits New High, Up 3.8 Pct in 2025,” January 14, 2026; “China's Foreign Trade Gains Momentum as Overseas Demand Powers Exports,” September 8, 2026.
Xinhua News Agency, “China's Economy Sustains Momentum as New Growth Drivers Strengthen,” September 15, 2026.
Xinhua News Agency, “China's H1 Foreign Trade Posts 16.9 Pct Growth with Optimized Structure,” July 14, 2026.
FactSet, August 20, 2026.
JCET Group/PR Newswire, “JCET Reports 79.4% YoY Growth in H1 2026 Net Profit Attributable to Shareholders, Accelerates Advanced Packaging Expansion,” August 20, 2026.
International Energy Agency, “Global EV Outlook 2026,” May 20, 2026.
Xinhua News Agency, “China's NEV Industry Moves Beyond Exports, Benefiting Global Markets,” August 6, 2026.
Yingke Zhou, Ying Zhang, and Jian Chang, “China: Turnaround Yet to Be Seen,” Barclays, August 17, 2026.
Henry Hoyle and Sonali Jain-Chandra, “China’s Real Estate Sector: Managing the Medium-Term Slowdown,” International Monetary Fund, February 2, 2026.
World Bank Group, “China Economic Update,” July 2026.
Yingke Zhou, Ying Zhang, and Jian Chang, “China Fiscal Watch: Holding Fire on Bigger Stimulus,” Barclays, September 16, 2026.
Yingke Zhou, Ying Zhang, and Jian Chang, “China Fiscal Watch: Holding Fire on Bigger Stimulus,” Barclays, September 16, 2026.
Yizhi Xu, Fan Zhang, Rongyu Cui, and Ding Hua, “Reforms to Reduce China’s High Household Savings,” International Monetary Fund, December 2025.
World Bank Group, “China Economic Update,” July 2026.
World Bank Group, “China Economic Update,” July 2026.
Reuters, “China's Measures to Shore Up Its Indebted Property Sector,” February 2, 2026.
Xinhua News Agency, “China Reports Narrowed Home Price Declines in July, Another Sign of Market Stabilization,” August 17, 2026.
Xinhua News Agency, “China's Consumer Goods Trade-In Programs Generate Sales of 1.1 trillion Yuan in H1,” July 23, 2026.
Yingke Zhou, Ying Zhang, and Jian Chang, “China: Turnaround Yet to Be Seen,” Barclays, August 17, 2026; Wall Street Journal, “Weak Domestic Demand Continues to Weigh on Chinese Economic Activity,” September 14, 2026.
Xinhua News Agency, “China Targets Stable Employment, Enhanced Social Security in Next Five Years,” July 9, 2026.
References to specific securities are for illustrative purposes only and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.
International investing involves special risks, such as political instability and currency fluctuations.
Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.
The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.