China's economic resilience is rooted in structural upgrading

Editor's note: Zhao Xiaotao, a special commentator on current affairs for CGTN, is an assistant professor at the Shanghai Academy of Social Sciences. The article reflects the author's views and not necessarily those of CGTN.

Data from the National Bureau of Statistics shows that China's economy expanded by 4.7% year-on-year in the first half of 2026, with second-quarter growth at 4.3%. Value added by industrial enterprises above designated size rose 5.4%, even as fixed-asset investment excluding rural households fell 5.7% and total retail sales of consumer goods increased 1.3%. It also demonstrates that advanced manufacturing, artificial intelligence (AI) and green transformation are rebuilding China's growth drivers.

The divergence within these figures defines the half-year economic development report. High-tech manufacturing, AI and new-energy industries are generating new growth, while capital and technology are being reallocated toward more productive uses. China is not simply experiencing a cyclical rebound. Its growth drivers are being rebuilt around technological upgrading, green transformation and a more sophisticated industrial structure.

The clearest evidence comes from industrial production. Value added in high-tech manufacturing increased 13.3%, and that in equipment manufacturing rose 9.3%, respectively 7.9% and 3.9% faster than the overall increase in value added by industrial enterprises above designated size. Output of 3D-printing equipment, lithium-ion batteries and industrial robots rose 48.5%, 39.3% and 28%.  

These are not isolated gains. They reflect expansion across advanced materials, key components, specialized equipment and final products. AI is increasingly embedded in this system, extending from semiconductors, servers and data infrastructure to industrial software, sensors and robotics.  

Its application in product design, production scheduling, quality inspection and predictive maintenance is also improving the operation of established factories. China's AI advantage increasingly lies in the integration of digital innovation with its broad manufacturing base.

Investment data reinforce this conclusion. Although fixed-asset investment excluding rural households declined by 5.7%, investment in high-tech industries increased by 4.6% and investment in intellectual property products grew by 9.4%. Within high-tech sectors, investment in aircraft, spacecraft and related equipment manufacturing rose 23.3%, while investment in information services increased 15.5%. 

This contrast points to capital reallocation rather than an economy-wide retreat from investment. Real estate adjustment and weaker conventional construction weigh on the aggregate figure, but more capital is moving toward research, software, patents, digital infrastructure and advanced production facilities. These assets raise future productivity rather than merely reproduce existing capacity. The important change is that productive resources are increasingly flowing toward technology-intensive activities.

Export performance provides an external test of this transformation. China's exports grew 13.4% in the first half. Exports of mechanical and electrical products rose 20.1% and accounted for 63.5% of total exports, while exports of high-tech products surged 39%. Such performance cannot be explained solely by cost competitiveness.

Advanced machinery, electronics and green products depend on engineering expertise, dense supplier networks, modern infrastructure, efficient logistics and the ability to organize complex production at scale. China's relatively complete industrial system shortens the path from research and testing to component production and mass commercialization. At the same time, its large domestic market allows firms to refine technologies through repeated application. Export upgrading is therefore one of the clearest market validations of domestic industrial transformation.

The relationship between new and traditional growth drivers is not one of simple substitution. Electric vehicles, batteries, wind turbines and solar equipment create demand across metals, chemicals, machinery, electronics, power grids and logistics. Meanwhile, AI, industrial internet platforms and intelligent equipment are improving productivity across machinery, steel, chemicals, textiles and other established industries.

Capacity-utilization data reveal this differentiation. Capacity utilization among industrial enterprises above designated size stood at 73% in the second quarter and at 73.5% in manufacturing. It reached 80.1% in general equipment manufacturing, 76.7% in special-purpose equipment manufacturing, and 78.7% in computer, communications and other electronic equipment manufacturing, up year-on-year by 1.8%, 0.2% and 1.4%, respectively. New industries create additional output; new technologies improve the efficiency of the existing capital stock. Together, they form a more durable relay between emerging and traditional sectors.

This transition does not eliminate short-term pressures. Total retail sales of consumer goods increased by only 1.3%, private fixed-asset investment fell by 8.5% and real estate development investment declined by 18%. Domestic demand and private-sector confidence therefore still require support. Yet consumption is also changing structurally: Retail sales of services grew 5.3%, considerably faster than sales of goods.

Weakness in some sectors should not be mistaken for an absence of resilience. Resilience means that an economy can continue to generate new sources of productivity, investment and external demand while legacy sectors adjust. China's expanding technology base, complete supply chains and capacity for large-scale commercialization are increasingly performing that stabilizing function.

The data of first-half of 2026 released today therefore support a firm conclusion. China's economy is not returning to its previous growth model; it is building a new one. High-tech manufacturing is expanding the productive frontier, AI is connecting digital innovation with the real economy, new-energy industries are opening new markets, and advanced technologies are upgrading the traditional industrial base.

Together, these changes are improving the quality of capital formation, strengthening export competitiveness and creating a more durable relay between old and new growth drivers. Short-term fluctuations will remain, but the direction of structural change is increasingly clear. Aggregate data show how fast an economy is growing. Structural upgrading determines how resilient that growth will be – and how far it can go.

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