Next Week in China: 24-28 August 2026

Major Data Releases:

• 24 August: Taiwan to report July employment and unemployment statistics
• 25 August: Hong Kong to report July external merchandise trade statistics
• 25 August: China to hold the 24^th Session of the Standing Committee of the 14^th National People’s Congress
• 27 August: China to report July industrial profits
• 27 August: China to conduct medium-term lending facility (MLF) operations, set interest rates

The last week of August will be relatively quiet in terms of major economic data releases. Policy attention will instead focus on the legislative session of the Standing Committee of the National People’s Congress, which will be held in Beijing from 25 to 28 August. Lawmakers will review draft laws including the Medical Security Law draft to improve healthcare services, Enterprise Bankruptcy Law amendments, and proposed changes to the Banking Supervision and Administration Law. They will also review the national economic and social development plan implementation and state budget so far this year.

For Chinese industrial firms, it is highly likely for July cumulative profits to be lower year-on-year. Although headline profitability improved in the first half, the recovery has not translated into stronger corporate willingness to expand production. Data from the National Bureau of Statistics show that profits of industrial enterprises above designated size rose 18.7 per cent year-on-year for January to June while the operating revenue profit margin reached 5.7 per cent, the highest since 2024. However, manufacturing investment fell 1.2 per cent in the semester and declined further by 1.7 per cent in January-July, suggesting that capital expenditure has weakened.

We see that this round of profit recovery remains highly dependent on prices rather than on final demand. In July, producer price growth eased to 3.5 per cent, suggesting that marginal support from prices to profits has weakened. A large share of the first-semester profit growth came from price dividends associated with rising prices of industrial goods. Once that momentum faded, earnings pressure resurfaced. Profit improvement has not driven capacity expansion partly because book profits have not been fully converted into operating cash flow. For many firms, the priority after improved profitability is repairing balance sheets, settling existing debt, and replenishing working capital rather than investing in new capacity.

This also reflects the broader mismatch between production and final demand, with insufficient effective demand remaining the key constraint. Consumption continues to lag income: in January-June, real per capita disposable income rose 4.2 per cent year-on-year but real consumption expenditure increased by only 2.7 per cent. Household loans declined by RMB 827.1 billion (USD 122.9 billion) in the first seven months, suggesting that residents continued to deleverage. This captures a negative loop of asset-price pressure, weaker expectations, higher savings, and softer consumption. China’s GDP grew 4.7 per cent in the first half and industrial production remained resilient, but output is not the same as sales. Finished goods inventories and accounts receivable both increased, leaving more capital tied up in inventories and payment chains. This helps explain how macroeconomic data can appear acceptable while micro-level sentiment remains weak.

Chinese equities delivered mixed performance over the past week. As of Thursday, 20 August, the MSCI China Index was up 2.01 per cent while the Shanghai Composite fell 0.6 per cent. The Shenzhen Component slipped 2.66 per cent and the ChiNext was down 3.6 per cent. Large caps slightly outperformed small- and mid-cap peers, while value shares modestly outpaced growth. Market volatility increased amid external shocks, and the dividend style regained its relative advantage recently. Amid weak domestic demand and constrained credit expansion, investors should avoid assuming a strong linear recovery in aggregate growth. This round of economic repair is not a simple cyclical rebound, but a structural recovery amid the transition from old to new growth drivers.

Equity allocation should focus on industries and companies capable of completing the full cash-flow loop of orders, sales, collections and reinvestment. Price-driven profit rebounds in upstream resources are more cyclical in nature, while hard technology, high-end equipment and the “six networks” industrial chains remain the more important long-term direction for positioning.