Nomura expects China's exports and industrial production to show some resilience in August, but domestic demand, investment, real estate and credit growth to remain weak

Overview

This report previews China's major macroeconomic data for August. Nomura believes that fading typhoon disruptions, resilient exports and the resumption of production in oil-related industries will bring limited improvement on the production side. However, domestic demand, fiscal support, real estate and credit expansion remain weak, so the overall growth rebound will be limited. On prices, increases in oil, gold, food, metals and chip prices will lift headline inflation but do not indicate a significant recovery in endogenous demand.

Core views

Regarding the growth backdrop and policy assessment, the report notes that real GDP growth slowed markedly from 5.0% y-o-y in Q1 to 4.3% in Q2, while July activity data showed a further slowdown. Although the National Development and Reform Commission has sought to accelerate investment spending, the Ministry of Finance has strengthened interest-subsidy programs, and some tier-one cities have introduced a new round of real estate easing measures, Nomura expects the boost from these policies to be limited and maintains its below-consensus forecast of 4.3% y-o-y GDP growth in Q3. Its core rationale is that domestic demand remains weak while fiscal contraction is intensifying: fiscal revenue rose 11.7% y-o-y in July, while fiscal expenditure grew only 0.5%. The report expects additional growth-stabilization policies during the year but believes the economy's “K-shaped” characteristics will constrain large-scale stimulus. Regarding business activity indicators, Nomura expects the official manufacturing PMI to remain at 49.2 in August and the official non-manufacturing PMI to edge up from 49.0 to 49.2. The fading impact of frequent typhoons in July on outdoor activity and production should support a marginal improvement in non-manufacturing activity and production, but weak domestic demand will limit the extent of the recovery. As a non-seasonally adjusted leading indicator of the official manufacturing PMI, the Emerging Industries PMI was only 47.8 in August, below the 48.2 average for the same periods in 2023–2025. Its month-on-month change was zero, also weaker than the average increase of 1.6 percentage points over the corresponding periods. By contrast, the RatingDog manufacturing PMI, which focuses more on SMEs and exporters in eastern coastal regions, is expected to remain in expansionary territory but decline from 50.9 in July to 50.4, with the global AI boom continuing to provide support. For industrial production, the report expects y-o-y growth to edge up from 4.5% to 4.7% in August, mainly because typhoon-related supply disruptions have faded and production in oil-related industries continues to recover. The real estate downturn, however, will cause production of construction materials to continue contracting. The operating rate of independent refineries in Shandong rose from 46.9% at end-June and 54.3% at end-July to 56.9% at end-August. The average operating rate in August was 4.4 percentage points higher than a year earlier, above the gaps of 3.2 percentage points in July and 1.4 percentage points in June, but below the respective gaps of 6.2, 7.0 and 9.7 percentage points in May, April and March. The operating rate of PTA plants increased from 55.6% at end-June and 61.1% at end-July to 61.5% at end-August. Its monthly average was 21.8 percentage points below the year-earlier level, a slight improvement from the 22.3 percentage-point shortfall in July. The average operating rate of polyester filament plants in Jiangsu and Zhejiang remained 16.5 percentage points below the year-earlier level, compared with a 17.9 percentage-point shortfall in July. High-frequency data for construction and heavy industry remained weak. The weekly operating rate of cement plants was 1.0 percentage point higher than a year earlier, slightly below the 1.1 percentage-point gap in July. The cement shipment-to-output ratio deteriorated from 0.3 percentage points below the year-earlier level in July to 1.8 percentage points below it. Y-o-y growth in rebar output at major steel mills fell from -5.1% to -15.7%, while crude steel output growth declined from -5.2% to -6.0%. Meanwhile, y-o-y growth in average daily coal consumption at power plants across eight southern provinces improved from -6.0% in July to -0.7% in August. Together, these data point to a recovery in oil and chemical production alongside a contraction in construction-related production. On foreign trade, the report expects exports to grow by 22.2% y-o-y in August, only slightly below July's 23.9%. Import growth is expected to rise from 27.6% to 29.1%, narrowing the trade surplus from USD112.3bn to USD108.2bn. Growth in imports from South Korea accelerated from 96.3% in July to 118.6% during 1–20 August, while export growth to South Korea slowed from 31.4% to 27.9%. Nomura emphasizes that strong export data largely reflect price effects: RMB-denominated exports rose 17.8% y-o-y in July, versus 20.7% in June, but export volume growth fell sharply from 11.6% in June to 5.5% in July, compared with 4.5% in May. As of 23 August, the month-to-date y-o-y growth in weekly container throughput at major ports had declined from 1.3% in July to -1.6%, also suggesting that actual trade activity was not broadly strong. The increase in import values also contains a significant price component. China's dry bulk import freight index rose 39.7% y-o-y month-to-date in August, close to July's 39.6%, while month-to-date growth in Brent crude oil prices accelerated from 17.6% to 33.5%. The rebound in oil prices since late July, following an approximately 20-day shipping window from the Persian Gulf to China, will be reflected in August import values, but the report still expects crude oil import volumes to post a significant y-o-y decline. Continued price increases for semiconductor products such as memory chips will also lift import values. Therefore, stronger nominal import growth does not necessarily imply a simultaneous strengthening of physical import demand. On inflation, Nomura expects CPI growth to rise from 0.5% to 0.8% y-o-y in August and from -0.1% to 0.3% m-o-m, above the flat m-o-m reading in August 2025, but believes underlying inflation remains subdued. High-frequency data from the Ministry of Agriculture and Rural Affairs show that the wholesale agricultural product price index rose 2.5% m-o-m in August, compared with a 0.6% decline in July, while its y-o-y change improved from -0.8% to -0.3%. Y-o-y egg-price growth slowed from 36.1% to 33.9%. Pork prices remained down 21.3% y-o-y, but the decline narrowed from 24.0% in July. Retail gasoline prices were raised by RMB685 per tonne on 1 August and cut by RMB230 per tonne on 15 August, leaving them up 7.5% m-o-m for the full month. The report estimates that this could contribute 0.23 percentage points to monthly CPI growth. The average spot gold price rose 7.5% m-o-m, while its y-o-y increase accelerated from 22.0% to 30.0%, and is expected to contribute 0.04 percentage points to monthly CPI growth. The report expects PPI growth to rise from 3.5% to 3.8% y-o-y in August and from -0.7% to 0.3% m-o-m, also above the flat m-o-m reading in August 2025. Following a renewed escalation in Middle East tensions, the average Brent crude oil price rose 9.1% m-o-m in August, compared with a 2.4% decline in July, while its y-o-y increase accelerated from 17.6% to 33.3%. Oil-related industries account for 14.1% of the PPI basket and will experience significant pass-through. Y-o-y growth in London Metal Exchange prices accelerated from 32.6% to 38.6%, providing price support to nonferrous-metal-related industries, which account for 7.3% of the PPI basket. Global chip price increases will continue to lift prices in computer, communications and other electronic equipment manufacturing, which accounts for 12.8% of the PPI basket. The m-o-m change in the Nanhua industrial raw materials price index turned from -4.0% to 2.4%, while the m-o-m change in raw material prices tracked by the National Bureau of Statistics also turned from -0.6% to 0.9%. On consumption, the report expects y-o-y growth in total retail sales of consumer goods to edge down from 0.6% to 0.5% in August. A low base provides some support, but payback effects after the scaling back of the trade-in program, weak consumer confidence, and adverse price effects from higher fuel and consumer electronics prices will continue to constrain real momentum. Auto sales, catering sales and retail sales of goods excluding automobiles are expected to grow by -17.8%, 0.7% and 2.6% y-o-y, respectively, compared with -17.0%, 1.4% and 2.5% in July. Growth in passenger vehicle retail sales volume is expected to decline further from -20.9% to -21.7% y-o-y. Weaker trade-in incentives and the increase in the new-energy vehicle purchase tax rate from 0% to 5% will make automobiles the main drag on overall retail sales. Weak summer tourism consumption will weigh on catering, while durable goods will continue to face policy payback effects. Higher prices for petroleum products and consumer electronics may also prompt households to reduce related spending. On investment, Nomura expects monthly fixed asset investment growth to improve slightly from -12.8% to -10.9% y-o-y in August, but cumulative growth to deteriorate from -6.7% to -7.2% y-o-y, which does not constitute a meaningful recovery. Net government bond issuance was again below the year-earlier level, and insufficient fiscal support constrained public investment. The monthly y-o-y decline in real estate investment is expected to widen from 27.5% to 28.0%, while the cumulative decline is expected to widen from 19.2% to 20.2%. Y-o-y growth in new-home floor space sold across the 20 major cities tracked by Wind fell from 5.0% in July to -6.9% in August, while growth in second-hand home transactions across 18 cities slowed from 9.5% to 7.6%. The housing market also shows significant regional divergence. Within the 20-city sample, y-o-y growth in new-home floor space sold in tier-one cities rose from 13.3% to 16.8%, while growth in tier-two and lower-tier cities deteriorated from 1.8% and -8.1% to -12.1% and -23.1%, respectively. The report argues that the benefits of AI-driven growth are concentrated mainly in a small number of large “smart cities,” potentially drawing resources away from traditional cities. Consequently, the current recovery in tier-one cities may not spread to lower-tier cities as it did in the past and could instead exacerbate existing regional imbalances, making a broad nationwide housing-market recovery more difficult. The Iceberg leading index, constructed using the lowest listing prices, fell 0.5% m-o-m in August, unchanged from July. On credit, the report expects new total social financing of RMB1,705bn in August, above July's RMB1,402bn but below RMB2,566bn in the same period last year. New RMB loans are expected to reach RMB150bn, rebounding from -RMB340bn in July but below RMB590bn in the same period last year. Growth in outstanding total social financing is expected to decline from 7.4% to 7.2% y-o-y, growth in outstanding RMB loans from 5.1% to 5.0%, while M2 growth is expected to edge up from 7.7% to 7.8%. As of 26 August, net financing from central and local government bonds totaled RMB1,105bn, below RMB1,329bn in the same period last year. Net corporate bond financing was RMB88bn, below RMB168bn in the same period last year. Net bond financing by local government financing vehicles was -RMB121bn, compared with -RMB14bn in the same period last year, while net bond financing by real estate developers was -RMB31bn, compared with RMB7bn a year earlier. Support from corporate bond financing was insufficient to offset weak government bond issuance, so credit expansion continued to slow. Short-term liquidity was more accommodative than in July. The month-to-date average DR007 declined from 1.418% to 1.399% in August, approaching the People's Bank of China's seven-day open-market reverse repo rate of 1.40%. The monthly average yield on 10-year Chinese government bonds fell from 1.738% to 1.699%. The report's overall conclusion is that external demand, some oil and chemical production, and liquidity conditions provide localized support, but domestic consumption, public investment, real estate and credit demand have yet to improve broadly. The economy continues to exhibit a “K-shaped” pattern, with exports and AI-related sectors performing relatively strongly while traditional domestic demand and lower-tier cities remain weak.

Analysis framework

Nomura first assesses the overall growth environment based on slowing GDP, fiscal revenue and expenditure, and recent growth-stabilization policies, and then uses the Emerging Industries PMI and forecasts for the official and RatingDog PMIs to evaluate changes in business activity. The report subsequently maps high-frequency indicators covering refining, chemicals, cement, steel, coal consumption, ports, freight rates and commodity prices to industrial production, trade and inflation, while distinguishing growth in export and import values from growth in physical volumes. Finally, it breaks consumption down into automobiles, catering and other goods; assesses investment and real estate using government bond issuance, housing transactions and differences across city tiers; and evaluates credit and liquidity through bond financing, loans, total social financing, money-market rates and government bond yields.

Methodology notes

• Cycle and Business Activity FrameworkBusiness Cycle Turning-Point Analysis

  Forecasting with leading and high-frequency business activity indicators

  The report uses the Emerging Industries PMI to forecast the official manufacturing PMI and combines high-frequency indicators for refining, chemicals, cement, steel, coal consumption, ports and housing listing prices to identify marginal changes in economic activity in August relative to July.

• Industry/Sector Analysis FrameworkVolume-price decomposition

  Decomposition of trade values and physical volumes

  The report compares growth in export values with growth in export volumes and uses changes in crude oil, chip prices and freight rates to explain import values, thereby distinguishing whether high nominal trade growth stems from actual demand or rising prices.

• Industry/Sector Analysis FrameworkUpstream-Midstream-Downstream Industry Chain Transmission

  Transmission of international commodity prices to imports, CPI and PPI

  Starting from changes in oil, gold, nonferrous metals, food and chip prices, the report tracks their transmission to import values, consumer prices and producer prices, while considering crude oil shipping times and industry weights in the relevant baskets.

• (Out-of-Vocabulary Method)

  Price-basket weights and contribution estimates

  The report quantifies the impact of various price shocks on overall inflation using estimated contributions from gasoline and gold to monthly CPI growth and the weights of oil-related, nonferrous metal and electronic equipment industries in the PPI basket.

Key data

• Q3 GDP Growth Forecast4.3% y-o-yMaintains the below-consensus forecast; actual growth in Q1 and Q2 was 5.0% and 4.3%, respectively
• Official Manufacturing PMI49.2August forecast, unchanged from July
• Official Non-Manufacturing PMI49.2August forecast, versus 49.0 in July
• RatingDog Manufacturing PMI50.4August forecast, versus 50.9 in July
• Industrial Production Growth4.7% y-o-yAugust forecast, versus 4.5% in July
• Export Growth22.2% y-o-yAugust forecast, versus 23.9% in July
• Import Growth29.1% y-o-yAugust forecast, versus 27.6% in July, with price effects an important driver
• Trade SurplusUSD108.2bnAugust forecast, versus USD112.3bn in July
• CPI Inflation0.8% y-o-y；0.3% m-o-mAugust forecast, versus 0.5% and -0.1%, respectively, in July
• PPI Inflation3.8% y-o-y；0.3% m-o-mAugust forecast, versus 3.5% and -0.7%, respectively, in July
• Retail Sales Growth0.5% y-o-yAugust forecast, versus 0.6% in July
• Fixed Asset Investment Growth-10.9% y-o-y；YTD -7.2% y-o-yThe August monthly forecast improves slightly from -12.8% in July, but cumulative growth deteriorates from -6.7%
• Real Estate Investment Growth-28.0% y-o-y；YTD -20.2% y-o-yAugust monthly and cumulative forecasts, versus -27.5% and -19.2%, respectively, in July
• New Total Social FinancingRMB1,705bnAugust forecast, versus RMB1,402bn in July and RMB2,566bn in the same period last year
• New RMB LoansRMB150bnAugust forecast, versus -RMB340bn in July and RMB590bn in the same period last year
• Outstanding Total Social Financing Growth7.2% y-o-yAugust forecast, versus 7.4% in July
• Outstanding RMB Loan Growth5.0% y-o-yAugust forecast, versus 5.1% in July
• M2 Growth7.8% y-o-yAugust forecast, versus 7.7% in July
• Month-to-Date Average DR0071.399%August month-to-date data, versus 1.418% in July, close to the seven-day reverse repo rate of 1.40%
• Monthly Average Yield on 10-Year Chinese Government Bonds1.699%August monthly average, versus 1.738% in July

Impact & implications

The report believes August data may show a combination of improving production and nominal price indicators but persistently weak domestic demand and credit indicators. Resilient exports, AI-related demand and resumed oil and chemical production can support industrial production, but price effects explain a substantial portion of the rebound in trade and inflation and should not be viewed as a broad improvement in actual domestic demand. Insufficient fiscal expenditure and government bond issuance continue to constrain public investment, while the real estate downturn and divergence across city tiers further weaken private-sector demand. As a result, moderate policy easing is unlikely to reverse the overall slowdown quickly.

Risks

• Persistently weak domestic demand may cause the growth boost from policy easing to continue falling short of expectations.
• Weak fiscal expenditure and net government bond financing will continue to constrain public investment and credit expansion.
• The real estate downturn and divergence among tier-one, tier-two and lower-tier cities may impede a broad nationwide housing-market recovery.
• Imported inflation resulting from higher oil, chip and consumer electronics prices may further constrain real household consumption.
• The economy's “K-shaped” characteristics may constrain large-scale stimulus and deepen resource imbalances between stronger cities and traditional cities.

What to watch

• 24 September: The Chinese president's state visit to the United States.
• Late September: People's Bank of China Monetary Policy Committee meeting.
• 1–7 October: National Day Golden Week holiday and related consumption performance.
• Mid-November: People's Bank of China releases its Q3 2026 Monetary Policy Report.
• 18–19 November: The “APAC Shenzhen” event listed in the report.
• Mid-December: Central Economic Work Conference.
• 14–15 December: G20 Summit.
• Late December: People's Bank of China Monetary Policy Committee meeting.
• Late December: Meeting of the Political Bureau of the CPC Central Committee.