China economy faces growth slowdown and currency undervaluation

China's economy is undergoing a structural transformation characterized by moderate growth and significant sector imbalances. According to the National Bureau of Statistics of China, GDP grew by 4.7% in the first half of 2026, though growth slowed from 5.0% in the first quarter to 4.3% in the second. This deceleration occurs as the government targets a growth rate between 4.5% and 5%.

The real estate sector remains a major challenge, with construction contracting by 4% in the first half of 2026 and real estate value-added showing almost no growth. Additionally, while per capita disposable income rose by 5.2% nominally, per capita consumption grew by only 3.7%, indicating cautious consumer spending.

China's external competitiveness is also being driven by a significant undervaluation of the yuan. Estimates suggest the renminbi may be undervalued by approximately 30% to 35% relative to economic fundamentals. This depreciation, combined with large economies of scale and industrial policies that lower manufacturing costs, has resulted in price discounts for Chinese exports, such as industrial robots and batteries, compared to international competitors.