China Economics Mid-Year Outlook: Upgrading Growth to Reflect AI and Energy Capex Super-cycle

Research evidence excerpt

China Economics Mid-Year Outlook: Upgrading Growth to Reflect AI and Energy Capex Super-cycle

Asia Pacific InsightM• Structural driver #1 – the global AI super-cycle: With the semiconductor market

projected to surpass US$1trn in 2026 and broadening deployment of agentic AI,

China's deep electronics supply chain is a direct beneficiary. AI chip localization is

accelerating, and Chinese capital goods companies are gaining share in global AI

infrastructure.

• Structural driver #2 – energy transition: The Middle East conflict has likely

accelerated global demand for renewables and power equipment, and China

controls over 80% of key solar manufacturing stages. Combined exports of solar,

batteries, and EVs surged 70% YoY in March, to a record US$21.9bn.

Why export strength may translate into narrower improvement

in job market than in previous cycles

The demand arithmetic is demanding: Housing and related sectors are still a drag

on nominal GDP of roughly 2ppt this year. With exports at ~15% of GDP on a

value-added basis, fully offsetting this drag alone would require sustained nominal

export growth of 14-15% – a bar China has rarely cleared in recent years. Exports

are clearly doing the heavy lifting, but the math shows that the hole they need to

fill is exceptionally large.

The employment content of today's export dollar is lower than in previous

cycles: China's export mix has shifted decisively up the value chain - toward EVs,

ships, semiconductors, and power equipment – sectors that are more capital-

intensive and automated. This means that each incremental dollar of export

growth generates fewer jobs than it used to.

Overcapacity in the broader manufacturing sector means firms will raise

utilization before headcount: Years of rapid investment in 2022–24 have left