China’s second-quarter GDP sector breakdown shows improving nominal growth, but real momentum remains uneven

Overview

This report focuses on the sector breakdown of China’s GDP in the second quarter of 2026. Its core conclusion is that economic structural divergence is evident, especially on a nominal basis. Nominal GDP growth in both manufacturing and financial services was close to 9%, but manufacturing was driven more by price factors such as oil and chips, while financial services benefited from a sharp rise in stock market trading volume; meanwhile, real estate and construction remained in sharp contraction, and consumption-related sectors continued to weigh on overall growth.

Core views

Nomura believes that the second-quarter slowdown reinforces its view that markets and policymakers cannot assume the new AI economy will be sufficient to resolve China’s structural economic pressures. Improvement in nominal GDP does not equal a recovery in real demand, and the strong growth in some sectors may reflect price effects, statistical methodology, or data quality concerns. The report expects the mid-year Politburo meeting may announce a new round of support measures, but the scale is likely to be moderate.

Analysis framework

The report cross-checks second-quarter economic momentum using sectoral value-added decomposition, comparisons of real versus nominal GDP, the GDP deflator, monthly retail and property data, stock turnover, total social financing and RMB loan growth, bank net interest margins, and other indicators. The analytical focus is not aggregate GDP alone, but identifying differences in growth quality across segments such as manufacturing, financial services, real estate and construction, consumption, logistics, and information technology services.

Methodology notes

• Macro sector decompositionReal GDP vs. nominal GDP comparison

  Decompose sources of growth through real growth, nominal growth, and the deflator

  The report emphasizes that although nominal growth in manufacturing and financial services was high, real growth and demand indicators did not improve to the same extent, so it is necessary to distinguish between price effects and genuine expansion in activity.

• Cross-validationSector GDP versus high-frequency or monthly data comparison

  Use property sales, housing starts, completions, retail sales, total social financing, loans, and net interest margins to validate sector GDP signals

  The report notes discrepancies between some GDP measures and monthly data. For example, there are inconsistencies between real estate and construction GDP and investment data, as well as between accommodation and catering GDP and catering retail sales.

• Policy assessmentEconomic momentum and policy response framework

  Assess the probability of support policies based on slowing growth and structural pressures

  The report believes the second-quarter slowdown will increase the need for policy support, but policy space is limited, so the scale of support measures is expected to be moderate.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China macro assets

  Directly related

  Strengths

  Nominal GDP and the GDP deflator turned positive, and some sectors maintained relatively high growth.

  Weaknesses

  Real growth slowed broadly, while domestic demand and the property chain remained weak.

  Comparison

  Nominal indicators are stronger than real momentum, with price factors outweighing demand recovery.

  Risks

  If policy support is insufficient or property conditions continue to deteriorate, growth quality may remain under pressure.

• China financial services and banking sector

  Highly related

  Strengths

  Stock market turnover rose sharply, and both nominal and real GDP growth in financial services improved.

  Weaknesses

  Declining commission rates, slowing credit growth, and record-low bank net interest margins weaken earnings quality.

  Comparison

  There is an inconsistency between strong sector GDP and pressure on banking fundamentals.

  Risks

  High growth in trading volume may not fully translate into profits, and bank earnings may remain under pressure.

• China real estate and construction chain

  Highly related

  Strengths

  The magnitude of nominal contraction narrowed somewhat from the first quarter.

  Weaknesses

  Real GDP, new home sales, housing starts, and completions all remained in clear contraction.

  Comparison

  The deterioration shown in GDP data may be milder than indicated by monthly property activity data.

  Risks

  The property downturn drags on construction, investment, household confidence, and related consumption.

• China consumption-related sectors

  Moderately to highly related

  Strengths

  Services consumption performed better than goods consumption, and real GDP growth in accommodation and catering improved.

  Weaknesses

  Wholesale and retail slowed, goods retail sales nearly stagnated, and consumption-related sectors as a whole still dragged on GDP.

  Comparison

  Accommodation and catering are smaller in scale than wholesale and retail and cannot offset weakness in goods consumption.

  Risks

  Limited policy space and the ongoing property crisis continue to suppress consumer confidence.

• AI, IT services, and software-related chain

  Moderately related

  Strengths

  Real growth in IT and related services reached 10.8%, and AI-related computing power and software demand may provide support.

  Weaknesses

  The sector deflator remains negative, and the AI economy is insufficient to resolve overall economic pressures.

  Comparison

  IT services maintain high growth, but their ability to offset macro weakness is limited.

  Risks

  The market may overestimate AI’s contribution to macro growth while overlooking the drag from property and consumption.

Key data

• Manufacturing real GDP growth4.8% YoY in Q2 2026Below 6.3% in the first quarter and the lowest since Q4 2023.
• Manufacturing nominal GDP growth8.8% YoY in Q2 2026Above 6.2% in the first quarter; the report believes this was mainly driven by the deflator turning positive and rising oil and chip prices.
• Financial services real GDP growth6.9% YoY in Q2 2026Above 6.5% in the first quarter and the highest since Q1 2016.
• Financial services nominal GDP growth8.9% YoY in Q2 2026Above 7.5% in the first quarter, contributing 0.66 percentage points to second-quarter nominal GDP growth.
• Average daily stock turnoverRMB 2.9 trillion in Q2 2026Above RMB 2.6 trillion in the first quarter, with YoY growth accelerating from 67.9% to 132.3%.
• Total social financing and RMB loan growth7.4% and 5.2% YoY, respectively, at end-Q2Below 7.9% and 5.7% at end-Q1, creating tension with the strong growth in financial services.
• Weighted average net interest margin of commercial banks1.40% in Q1 2026Below 1.42% in Q4 2025; the report expects bank profitability remained under pressure in Q2.
• Combined real GDP growth in real estate and construction-2.3% YoY in Q2 2026Further deteriorated from -1.6% in the first quarter.
• New home sales, housing starts, and completions-12.7%, -25.7%, and -21.9% YoY, respectively, in Q2Showing that the property chain remains in deep contraction.
• Wholesale and retail real GDP growth3.3% YoY in Q2 2026Below 4.1% in the first quarter, dragged down by the fading trade-in policy and weak consumer confidence.
• Second-half retail sales forecast3.0% YoYNomura lowered the forecast from 3.6%; the full-year forecast was cut from 3.2% to 2.2%.
• Overall GDP deflator1.6% YoY in Q2 2026Turned positive from -0.1% in the first quarter, the first positive reading since Q1 2023.

Impact & implications

The report’s investment implication is that the apparent improvement in China’s nominal growth cannot be simply interpreted as a broad-based recovery in demand. The strength in financial services and manufacturing is driven more by prices, external factors, and trading activity, while real estate, construction, and goods consumption still indicate weak domestic demand. For markets, AI-related demand may support parts of the IT, software, and computing chain, but it is not enough to offset the drag from property and consumption; for policy, the report expects support measures are still needed, but their strength may be constrained by limited policy space.

Risks

• The improvement in nominal growth mainly comes from price factors rather than a recovery in real demand.
• The high GDP growth in financial services may overstate the boost from active stock market trading to actual profits.
• The downturn in real estate and construction may be more severe than reflected in GDP data.
• There are questions about investment data quality, especially the clear discrepancy between GDP measures and FAI data.
• Weak consumption and limited policy space may continue to weigh on growth in the second half.
• External oil and chip prices drove the deflator back into positive territory; if prices fall, support for nominal growth may weaken.

What to watch

• Whether the mid-year Politburo meeting will launch a new round of support measures and their scale.
• Whether real manufacturing growth will continue to lag nominal growth, and whether the deflator will remain driven by external prices.
• Subsequent changes in stock turnover, commission rates, total social financing, RMB loans, and bank net interest margins.
• Whether new home sales, housing starts, completions, and property investment will continue to contract sharply.
• Whether second-half retail sales will come close to Nomura’s revised 3.0% forecast.
• Whether strong growth in AI-related IT services can spread to broader domestic demand and corporate investment.