China’s July price data provides a timely snapshot of economic conditions at the start of the second half of 2026. The consumer price index (CPI) increased 0.5 per cent year on year and fell 0.1 per cent month on month, with the month-on- month fall narrowing by 0.2 percentage points from June. Core CPI, which excludes food and energy prices, rose 0.9 percent year on year and 0.3 percent month on month. The producer price index (PPI) was up 3.5 percent from a year earlier but down 0.7 percent from June.
The CPI print indicates prices are increasing at a modest pace, while the rise in core CPI shows underlying demand is holding up. The fall in international crude oil prices from earlier highs contributed to month-on-month declines in both CPI and PPI, lowering domestic fuel prices and costs for upstream industrial producers. This externally driven short-term adjustment does not change the broader signal of gradual price firming since the beginning of the year.
CPI increased by 1.0 per cent on average in the first half, core CPI 1.2 per cent and PPI 1.5 per cent. But CPI inflation on average was still below the government’s annual indicative target of around two per cent. A more robust and better-coordinated fiscal-monetary policy mix would support aggregate demand, spread out price increases across sectors and make the annual target easier to achieve.
Gradual firming of prices supported by stable economic growth and increasing contribution of new growth drivers. China’s GDP reached 69.57 trillion yuan ($10.31 trillion) in the first half, with real growth of 4.7 per cent, against an uncertain external backdrop. Services climbed 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. High-tech manufacturing in the industry rose by 13.3 percent and equipment manufacturing was up 9.3 percent. This sectoral composition points to continued industrial upgrading along with stable aggregate growth.
Industrial profitability is a complementary measure of demand and operating conditions. Revenue at industrial enterprises above designated size rose 6.5 per cent in the first half, while total profits were up 18.7 per cent to 3.95 trillion yuan ($585 billion). Their operating revenue profit margin was 5.70 per cent, up 0.59 percentage points on a year earlier and the highest cumulative monthly level since 2024.
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Higher revenues, better cost conditions and stronger balance sheets also underpinned industrial performance. This has been helped by policies to rein in “involution-style” competition, such as excessive price wars, and duplicative expansion that squeeze corporate margins. Such policies help to create more orderly market competition, giving firms more space to invest in research, product quality and technological upgrading, which in turn heightens incentives for innovation.
In terms of investment composition, fixed-asset investment fell 5.7 per cent in the first half, but the fall was 2.7 per cent if excluding real estate development. Investment in real estate development declined by 18.0 per cent. In sectors where supply grows faster than demand, slower investment can help inventory adjustment, reduce excessive price competition and improve the conditions for profitability and property market stabilization.
Simultaneously, investment remained directed at activities related to technological change and growth in productivity. Investments in intellectual property products increased by 9.4 percent and investments in the high-tech industry by 4.6 percent. Aerospace equipment manufacturing grew 23.3 percent and information services 15.5 percent, among others. The deceleration of investment was therefore not uniform, but went together with a reallocation of capital to sectors with higher long-term growth potential.
China’s stable growth is especially important as momentum in the global economy is slowing. In its July World Economic Outlook Update, the International Monetary Fund (IMF) reduced its forecast for global growth in 2026 from 3.3 per cent to 3.0 per cent compared with its January update. But over the same period the IMF has increased its forecast for China’s growth by 0.2 percentage points to 4.6 per cent.
The other side of these revisions provides external confirmation of China’s underlying economic strength. The global outlook has darkened, but China’s continued expansion is still generating demand, investment opportunities and policy predictability, making it an increasingly important anchor for global growth.
This contribution is channeled directly to other economies thru trade. In the first half of the year, China’s imports and exports of goods rose 16.9 percent. Imports rose 22.1 per cent to 10.74 trillion yuan ($1.59 trillion), converting domestic demand into overseas output and income. Trade with countries involved in the Belt and Road Initiative increased 14.8 per cent. Expansion of high-tech manufacturing and exports of mechanical and electrical products support international supply chains and diffusion of equipment used in digitalization, industrial upgrading and green transition.
The policy implication is twofold. Stronger fiscal and monetary coordination at home can help to reinforce demand, so that the rise in prices is broader and more durable. Internationally, China’s stable growth, rising imports and ongoing industrial upgrading provide a source of demand and predictability in an uncertain global economy.
The July numbers are in line with that broader assessment: prices are rising modestly, underlying demand is improving, and the economy continues to be resilient and able to grow further.
Editor’s Note: This article is excerpted from the China Global Television Network (CGTN). The author, Li, is a special commentator for CGTN and an assistant professor of economics at the National School of Development, Peking University, Beijing, China.
