China’s AI Manufacturing Boom Masks Weak Consumer Economy, Citi Says - EconoTimes
China’s economy continued to show a sharp divide in May, with a booming artificial intelligence (AI)-driven manufacturing sector helping sustain growth while domestic demand remained weak, according to a recent research note from Citi.The bank highlighted that China’s AI-related industries are emerging as a key growth engine. High-tech manufacturing output expanded at its fastest pace in five years, boosting overall industrial production and exports. Sectors including semiconductor manufacturing, robotics, and new energy vehicles (NEVs) recorded strong gains, while investment in telecommunications equipment and intellectual property continued to accelerate.However, China’s domestic economy painted a much less encouraging picture. Retail sales unexpectedly declined for the first time since the COVID-19 pandemic, falling short of already modest market expectations. Fixed-asset investment also continued to weaken, with the rate of decline reaching its lowest level in roughly a year. Citi noted that stable consumer prices combined with rising producer prices could signal increasing stagflation risks, suggesting that inflationary pressures are extending beyond energy-related factors.Despite these challenges, the strength of China’s AI and technology sectors is helping support headline economic growth. Citi maintained its forecasts for both second-quarter and full-year 2026 GDP growth, arguing that the most severe phase of the economic slowdown may have already passed as year-over-year comparisons become more favorable in the second half of the year.The bank expects Beijing to continue implementing targeted policy measures rather than launching broad economic stimulus. Existing initiatives are focused on supporting the country’s AI transition and stabilizing investment activity. Citi also suggested that growing pressure in the labor market during the summer months could prompt additional selective support measures.Looking ahead, consumer spending and household income are expected to be key topics at the Communist Party’s July Politburo meeting. Nevertheless, with overall economic growth remaining relatively stable, Citi believes the likelihood of large-scale stimulus remains low. The bank does not anticipate a significant increase in China’s budget deficit or government bond issuance, although it continues to expect a modest interest rate cut later this year.China’s economic outlook remains heavily dependent on technology, manufacturing, and trade, while household consumption and private-sector investment continue to lag. Ongoing weakness in the property market, persistent trade tensions with the United States, and uncertainty stemming from the 2026 Middle East crisis are also weighing on economic confidence. As a result, Beijing has set a lower economic growth target for 2026 compared with the previous year.Gold is meant to be a ‘safe haven’ in uncertain times. Why is it crashing amid a war?Wall Street Slides as Iran War Uncertainty, Oil Surge, and AI Fears Rattle MarketsSpaceX IPO Filing Expected This Week as Valuation Could Surpass $75 BillionStagflation Shadows: U.S. Manufacturing Shines as Services Slump to 11-Month LowScarcity and Strife: Bitcoin Hits Historic Milestone Amid Geopolitical TremorsStrategy's Multi-Billion Dollar Bitcoin Accumulation: A 2026 Milestone
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