China's Exports Surge on AI Demand Despite Investment Weakness
China's May exports jumped 19.6% year-over-year, driven by strong demand for AI-related semiconductors and tech products, but fixed-asset investment declined 4.1%—the steepest drop since May 2020—signaling weakness in domestic demand.
Robust Export Growth Powered by AI Boom
In May, that trend continued. Exports (denominated in US dollars) were up 19.6% from a year earlier—the second biggest increase since January 2022. The strength of exports was likely supported by strong demand for AI-related products such as semiconductors and computer hardware. Indeed, exports of semiconductors were up 110% from a year earlier, while exports of mobile phones were up 44% and exports of automatic data-processing machines were up 66%.
Sharp Decline in Fixed-Asset Investment
The Chinese government reported that, in the first five months of 2026, fixed-asset investment was down 4.1% from a year earlier. This was the steepest decline in investment since May 2020, which was when the COVID-19 pandemic started. This decline included a sharp 16.2% drop in property investment.
Weak Manufacturing Investment Amid Export Strength
Investment in manufacturing was up only 0.4% from a year earlier, indicating that businesses may not be keen to increase capacity at a time when there is likely excess capacity already. The divergence between strong export growth and weak investment suggests that exporters are relying on existing capacity rather than expanding production.
Industrial Production Gains Modest Momentum
On the positive side, industrial production grew in May. It was up a modest 4.5% from a year earlier but was still somewhat lower than the average in the past two years. By sector, output was up 4.4% in manufacturing, up 7.6% in utilities, and up 2.3% in mining. The strength in manufacturing output helps explain robust export performance despite cautious investment behavior.