Government borrowing surges in July

CHINA FINANCIAL - Report 19 Aug 2026 by Michael Pettis

Special points to highlight in this report:

* China’s economy remains stuck in the same pattern: industrial production continues to outpace domestic demand, with July retail sales growth falling to just 0.6%.

* China is increasingly relying on government borrowing: weak household and corporate credit is being replaced by state-led borrowing, suggesting that dependence on fiscal support is rising rather than falling.

* The K-shaped economy is becoming a real policy debate: Chinese economists are increasingly questioning whether the rapidly growing “new productive forces” are large enough to compensate for the contraction of the old economy—or whether weak demand, debt and local-government balance sheets are holding the entire economy back.

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