China Economy 2026: Property Crash Meets Record AI-Driven Export Boom

China’s economy is being pulled in two directions at once. Fixed-asset investment fell 4.1% year-on-year in the first five months of 2026 — the steepest decline since May 2020 — while exports surged 19.6% in May alone, powered overwhelmingly by semiconductor and AI-hardware demand, according to Deloitte’s Weekly Global Economic Update.

The Property Sector’s Deepening Slide

Property investment within that fixed-asset figure fell 16.2% year-on-year, the sharpest drop recorded in the current downturn. Roughly two-thirds of Chinese household wealth is held in property, so the sustained decline in home values is pushing consumers toward higher savings and lower spending as they attempt to rebuild balance sheets, per Deloitte’s analysis from chief global economist Ira Kalish. Government efforts to stabilize the housing market have so far failed to reverse the trend, with the excess capacity built during the prior debt-fueled construction boom still working through the system.

Exports Riding the Global AI Supercycle

The export side of the ledger tells a starkly different story. Semiconductor exports rose 110% year-on-year in May, mobile phone exports climbed 44%, and exports of automatic data-processing machines — the category covering computer and data-storage components — increased 66%. The May export growth of 19.6% was the second-largest year-on-year increase since January 2022, trailing only the 39.6% surge recorded in January–February 2026. Part of that strength reflects inventory build-up by global buyers anticipating further supply-chain disruption from the ongoing Middle East conflict.

Tariff Investigations Add a New Layer of Risk

Even as exports boom, the trade environment China and its partners face is becoming more adversarial. The US administration has launched an investigation into 60 countries — including the European Union — to determine whether they are importing goods made with forced labor, with the goal of imposing tariffs ranging from 10% to 12.5%. The move sets the stage for renewed friction even after the US and EU reached a trade agreement approved by the European Parliament the previous year, according to Deloitte’s tracking of the administration’s tariff strategy.

The China-Russia Financial Relationship Under New Strain

China’s export strength has not shielded it from secondary pressure tied to its economic relationship with Russia. US Treasury sanctions actions have begun targeting cross-border payment channels between Russian and Chinese entities used to facilitate sensitive-goods transactions, and Chinese banks have reportedly started refusing payments from Russian counterparties amid the threat of US secondary sanctions, according to CEPA’s analysis of the sanctions squeeze. China has supplied more than 90% of Russia’s semiconductor imports since the Ukraine war began, per CSIS’s research on sanctions reshaping Russia’s economy, making Beijing’s compliance posture a critical swing factor for Moscow’s continued access to Western-branded technology.

What It Means for the Regional Outlook

Asia House projects China’s growth easing modestly from 4.8% in 2025 to 4.6% in 2026, a relatively soft landing given the scale of tariffs imposed on Chinese exports, reflecting redirected trade flows toward Asian and European markets and a weaker real effective exchange rate, according to Asia House’s Annual Outlook. For ASEAN economies plugged into China’s supply chains — Malaysia and Vietnam in particular — the divergence between China’s property drag and export strength will remain a key variable shaping regional growth through the rest of 2026.