By Li Lintong
China’s July price data offers a timely assessment of economic conditions at the start of the second half of 2026. The consumer price index (CPI) rose 0.5 per cent year on year and declined 0.1 per cent month on month, with the monthly fall narrowing by 0.2 percentage points from June. Core CPI, which excludes food and energy, increased 0.9 per cent year on year and 0.3 per cent month on month. The producer price index (PPI) rose 3.5 per cent from a year earlier but fell 0.7 per cent from June.
The CPI reading remains consistent with moderate price growth, while the rise in core CPI indicates some firmness in underlying demand. The retreat of international crude oil prices from earlier highs, which reduced domestic fuel prices and costs for upstream industrial producers, was a major factor behind the month-on-month declines in both CPI and PPI. This short-term, externally driven adjustment does not change the broader signal of gradual price firming since the beginning of the year.
In the first half, CPI rose by an average of 1.0 per cent, core CPI by 1.2 per cent and PPI by 1.5 per cent. Average CPI growth nevertheless remained below the government’s annual indicative target of around two per cent. A stronger and better-coordinated fiscal and monetary policy mix would support aggregate demand, broaden price increases across sectors and make the annual target more attainable.
The gradual firming of prices is underpinned by stable economic growth and the increasing contribution of new growth drivers. China’s GDP reached 69.57 trillion yuan ($10.31 trillion) in the first half, representing real growth of 4.7 per cent amid an uncertain external environment. Services expanded 5.2 per cent, and value added by industrial enterprises above designated size – enterprises with an annual main business revenue of 20 million yuan ($2.8 million) or more – rose 5.4 per cent. Within industry, high-tech manufacturing grew 13.3 per cent and equipment manufacturing 9.3 per cent. This sectoral composition indicates that stable aggregate growth has been accompanied by continued industrial upgrading.
Industrial profitability provides a complementary measure of demand and operating conditions. In the first six months, revenue at industrial enterprises above designated size increased 6.5 per cent, while total profits rose 18.7 per cent to 3.95 trillion yuan ($585 billion). Their operating-revenue profit margin reached 5.70 per cent, 0.59 percentage points higher than a year earlier and the highest cumulative monthly level since 2024.
Stronger revenue, more favourable cost conditions, and healthier balance sheets also contributed to industrial performance. This improvement has benefited from policies aimed at curbing “involution-style” competition, including excessive price-cutting and duplicative expansion that compress corporate margins. By promoting more orderly market competition, these policies give firms greater scope to invest in research, product quality and technological upgrading, thereby strengthening incentives for innovation.
To interpret investment data by composition, fixed-asset investment declined 5.7 per cent in the first half, but the decrease was 2.7 per cent when real estate development was excluded. Real estate development investment fell 18.0 per cent. In sectors where supply expands faster than demand, slower investment can facilitate inventory adjustment, reduce excessive price competition, and improve the conditions for profitability and property market stabilisation.
At the same time, investment continued to move towards activities associated with technological progress and productivity growth. Investment in intellectual property products increased 9.4 per cent, and high-tech industry investment rose 4.6 per cent. This included growth of 23.3 per cent in aerospace equipment manufacturing and 15.5 per cent in information services. The investment slowdown was therefore not uniform; it was accompanied by a reallocation of capital towards sectors with stronger long-term growth potential.
China’s stable growth is particularly important as momentum in the global economy weakens. Compared with its January update, the International Monetary Fund (IMF)’s July World Economic Outlook Update lowered its forecast for global growth in 2026 from 3.3 per cent to 3.0 per cent. Over the same period, however, the IMF raised its forecast for China’s growth by 0.2 per cent to 4.6 per cent.
The opposite direction of these revisions provides external confirmation of China’s underlying economic strength. While the global outlook has dimmed, China’s sustained expansion continues to generate demand, investment opportunities and policy predictability, making it an increasingly important anchor for global growth.
Trade is a direct channel through which this contribution reaches other economies. China’s goods imports and exports increased 16.9 per cent in the first half. Imports rose 22.1 per cent to 10.74 trillion yuan ($1.59 trillion), converting domestic demand into production and income abroad. Trade with Belt and Road partner countries grew 14.8 per cent. Expansion in high-tech manufacturing and exports of mechanical and electrical products also supports international supply chains and the diffusion of equipment used in digitalisation, industrial upgrading and green transition.
The policy implication is twofold. Domestically, stronger fiscal and monetary coordination can reinforce demand and make the upward movement in prices broader and more durable. Internationally, China’s stable growth, expanding imports and continued industrial upgrading provide a source of demand and predictability in an uncertain global economy.
The July data are consistent with that broader assessment: Prices are rising moderately, underlying demand is strengthening, and the economy retains both stability and room for further expansion.
Editor’s Note: This article is culled from the China Global Television Network (CGTN), and the author, Li, an Assistant Professor of Economics at the National School of Development, Peking University, Beijing, China, is a special commentator for CGTN.
(The Sun)