Investment is supposed to be what props up China’s economy when growth slows – but not this year.
Fixed asset investment (FAI) has declined across all three of its main components — manufacturing, infrastructure, and real estate — and it’s set to keep dragging on growth through year-end.
But look beneath the headline numbers, and three very different stories are playing out.
Manufacturing is stuck in a genuine malaise.
The Iran war pushed up input costs just as an escalating anti-involution campaign was already squeezing margins in sectors from chemicals to building materials.
Meanwhile, capacity utilization is at the lowest reading on record outside of COVID — and the first year on record in which utilization failed to tick up from its seasonal Q1 low.
When factories are running this far below capacity, there’s little appetite to build more of it.
Real estate is worse and shows no sign of turning.
Developer cash reserves fell 20% in H1 — faster than either sales or investment — meaning construction is being strangled by a genuine cash crunch, not just weak demand.
The cushion that kept construction going through the worst of the crisis — finishing off pre-sold homes — has now largely run out.
Meanwhile Beijing’s unwillingness to rescue the sector was best demonstrated by Xi Jinping’s recent choice of photo-op — a visit to a Shanghai housing project that didn’t involve any new home purchases.
Infrastructure is the one component we forecast to grow in the second half of the year — but there’s less here than meets the eye.
On the surface, Beijing’s new “six networks” investment push and a fresh wave of bond issuance look set to push infrastructure investment back into growth territory.
But investment in H2 2025 was exceptionally weak, meaning infrastructure investment can look meaningfully better this year without genuinely accelerating at all.
Strip out that base effect, and we see a picture of modest investment stabilization, rather than a genuine investment rebound.
We’ve just published a full breakdown of what’s driving investment in each of these areas, sector-by-sector forecasts through year-end, and the specific policy signals that could change our view.
It’s available now to subscribers of our China Markets service — along with the rest of our macro, markets, and policy research.
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What you missed
U.S.-China
Xi Jinping is considering bringing a group of “tech, electric vehicle and aerospace” execs on his visit to Washington later this month.
But the business contingent may be more show than substance, with one SCMP source saying the delegation was “more about optics than concrete deliverables.”
US intelligence agencies issued a joint advisory alleging that Chinese AI companies have systematically extracted capabilities from U.S. frontier models through distillation.
The document names DeepSeek and Moonshot AI as the worst offenders, and also accuses Alibaba, MiniMax, StepFun, and Z.AI.
The U.S. and China are reportedly preparing a mid-September AI safety dialogue.
Washington wants labs on both sides to police themselves and share information to head off AI-directed cyberattacks, following July’s Hugging Face breach by rogue AI agents.
Econ and finance
China’s exports grew 25.0% y/y in August, up from 23.9% the previous month, but growth continues to be driven by price rather than volume.
Meanwhile, consumer prices (CPI) rose 0.8% y/y in August, up from a meager 0.5% in July.
The uptick is mostly due to base effects, as CPI fell 0.4% y/y in August 2025.
Business environment
AmCham Shanghai’s annual China Business Report found that 58% of respondents were optimistic about their five-year outlook in China, up 17 percentage points from last year’s record low.
Firms are less worried about the U.S.-China relationship, with only 53% citing bilateral tensions as one of their top three challenges – down from 66% in 2025.
Competition from Chinese firms has overtaken U.S.-China tensions as the top challenge for American firms in China for the first time since 2022.
In an attempt to keep pace with Chinese rivals, half of firms surveyed by AmCham Shanghai plan to raise R&D spending in China, up from a third last year.
Corporates
BYD is reportedly planning to build 70,000 charging stations in China between 2027 and 2028, on top of the 20,000 it plans to have in place by end-2026.
If true, the size of BYD’s charging network would approach that of China’s entire network of 110,000 gas stations.
Tech
The securities regulator (CSRC) has issued informal “window guidance” to investment banks that raises the bar for humanoid robotics IPOs.
Private market funding for humanoid robots is showing signs of overheating — a couple dozen humanoid unicorns were minted in H1 2026 alone.
The industrial ministry (MIIT) released its 15th Five-Year Plan for the information and communications industry, covering targets for telecoms, data centers, satellites, and spectrum.
The plan targets a 6.2x increase in intelligent computing power over the next five years and explicitly calls on officials to “step up efforts to adapt to domestic chips,” indicating an even narrower space for foreign chips in Chinese data centers.
Agriculture and rural affairs
The agriculture ministry (MARA), the Party’s rural policy office, and four other agencies jointly issued a plan to improve financing mechanisms for rural revitalization.
The plan aims to make rural finance more effective by 2030 by prioritizing rural areas in fiscal budgets, putting rural assets to work, and ensuring investment is coordinated with ag policy priorities and trade settings.
As always, it was a busy week in China.
Thank goodness Trivium China is here to make sure you don’t miss any of the developments that matter.