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CNBC's The China Connection newsletter: Waiting for AI to lift the whole market
A real estate project under construction in Yantai, Shandong, on May 29, 2026, symbolizes China's economic divergence: AI-driven tech exports surge while traditional sectors like property slump. Official data expected Tuesday (June 16) for May is forecast to show stagnation. Retail sales, which eked out 0.2% in April (slowest since end of Covid restrictions), are predicted to slow to 0% year-on-year in May, according to a Reuters poll. Industrial output is expected to tick up to 4.3% from 4.1%, while fixed-asset investment (year-to-date) is forecast to drop 2% (worse than 1.6% drop as of April), dragged by a 13.7% real estate investment decline. Standard Bank's Jeremy Stevens warns of GDP downgrades, saying "we don't see a credible path to 4.6% in Q2:26," instead testing the 4% threshold. He cites the Iran war squeezing manufacturing margins to five-year lows, denting consumer confidence and encouraging cash-hoarding. KKR's mid-year outlook calls property "the single biggest reason we are not more bullish," estimating the drag will narrow to 0.6 percentage points next year from 1 point this year, and digitalization will contribute 2.5 points to GDP by 2027. However, retail and tourism's modest 0.9-point contribution won't prevent overall growth slowing to 4.4% in 2027 from 4.6% this year. Foreign firms struggle: General Mills is selling Haagen-Dazs stores in mainland China; Audi's new brand sold only 900 cars in May; Lululemon sees weak China growth. Chinese companies expand: Li-Ning signed NBA star Stephen Curry for Curry-branded stores; Midea launched a tech solutions product for overseas factory management. The Pentagon expanded its list of China military-linked firms to include Alibaba and Baidu. BYD predicts 80% of China car sales will soon be electric. A Chinese robot vacuum startup Dreame's funding dilemma highlights cracks in Beijing's tech funding machine.