Recently released data from the Chinese National Bureau of Statistics for June revealed that there is a continuing divergence between production and consumption sides, exacerbating economic imbalances. The sluggish domestic demand, a stagnant real estate market, and persistent contraction in private investment are contributing to China’s economy increasingly showing a “K-shaped” or even “super K-shaped” pattern, with disparities widening among industries, enterprises, and different social strata.
The National Bureau of Statistics of China announced on July 9 the data for the consumer price index (CPI) and the producer price index (PPI) for June on its official website. In June, the CPI decreased by 0.3% month-on-month but increased by 1.0% year-on-year, while the PPI also decreased by 0.3% month-on-month but rose by 4.1% year-on-year.
The NBS stated that the CPI continues to see moderate growth, while the PPI decline by 0.3% month-on-month was influenced by factors such as the decrease in international crude oil prices, with the year-on-year increase slightly expanding.
Analysts have observed that the significant year-on-year increase of 4.1% in the PPI for June is primarily driven by the escalation in energy and upstream raw material prices, highlighting the macroeconomic structure in China.
Simultaneously, it’s worth noting that domestic demand in China remains insufficient, the real estate market is weak, consumer confidence is low, making it challenging to fully pass on costs to end consumers. While the CPI saw some slowdown compared to May, indicating that consumer demand has not fully recovered.
The Wall Street Journal pointed out that the year-on-year increase in PPI has risen, while CPI has decreased, creating a divergence between strong production and weak consumption sides.
Analysts believe that the lower-than-expected CPI growth for June in China suggests that food prices remain weak, and the recovery of consumer spending is limited. There is an anticipation in the market for more growth-stabilizing and demand-expanding policies from the government.
Renowned media personality Mike Li pointed out that the “scissor gap” between PPI and CPI has been widening since March 2026, signifying a continuous divergence between the overheated production side and the cold consumption side amid soaring external resources and energy prices, leading to prolonged stagnation in consumer spending.
In June, China hosted the “China Macro Economy Forum” in Beijing on June 27, where several incumbent and former government advisors openly urged the Chinese government to address the imbalance of “strong production and weak demand.”
Huang Haizhou, a consultant from the People’s Bank of China, emphasized that a country deeply trapped in monetary contraction is unlikely to foster technological innovations. He cited Japan’s decades-long experience with monetary contraction, leading to the failure to nurture top AI companies, contrasting with South Korea’s success with giants like SK Hynix.
Among other experts, Liu Qing, an economics professor at Renmin University of China, highlighted the importance of discussing and exploring ways to share the benefits of AI and related industries across the entire society to prevent excessive concentration of technological dividends, noting a lack of such discussions in China compared to international forums.
The expanding “K-shaped” economy in China, driven by rapid growth in exports and industrial production but weakened consumer confidence, reflects a polarized growth trend where the tech-driven sectors prosper, while traditional industries face decline and elimination.
The current economic phenomenon in China, known as the “K-shaped” economy, demonstrates a stark divergence in the development trajectories of different industries, enterprises, or social strata amid overall economic recovery or growth.
Furthermore, a series of official data from China also indicates that the profitability gap between industries benefiting from rising oil and chip prices and other industries is intensifying.
The “K-shaped” scenario portrays winners climbing higher continuously in the upper part of the letter “K” while losers remain stagnant or decline in the lower part, disrupting the traditional belief that economic growth benefits the majority.
Analyzing the prevailing “K-shaped” economy in China, Mike suggests that despite efforts to rely on “new quality production forces” like AI, semiconductors, electric vehicles, the heavy investment in high-tech domains to transform the economic structure and shift away from real estate dependence may only accelerate the “K-shaped” economy.
Data released by the National Bureau of Statistics of China on June 16 indicated a 4.1% year-on-year decrease in fixed asset investment nationwide during January to May 2026, with private fixed asset investment plummeting by 7.1%.
The decline in investments is spread across all regions, including the East, Central, West, and Northeast of China, with the Northeast experiencing a significant drop of 17.5%.
Although there was a slight increase in fixed asset investment at the beginning of the year, the trend has been declining since early 2026, with private investments continuing to contract as investors seek secure havens for funds.
Mike points out that while high-tech industry investments saw a 4.5% annual increase, boosting overall investment growth by 0.4 percentage points, the overall fixed asset investment drastically decreased, especially with private investments shrinking further as investors seek safer options.
He emphasizes that Chinese citizens are currently holding tightly onto their wallets. Despite the consumption boost from the May holiday, the year-on-year consumer price increase in June was only 1.0%, with total retail sales of consumer goods seeing a mere 1.4% growth. The service industry and residential prices remain weak, reflecting the “K-shaped” economic trend of “satellite soaring, consumption falling.”
Tetsu Nishihami, Chief Economist of the Economic Research Department at Japan’s Dai-ichi Life Asset Management, discussed China’s first-quarter economic situation on the institution’s official website, highlighting that the long-term stagnation in real estate and reduced job opportunities will further widen the gap between the benefited and non-benefited groups from the official policies (K-shaped economy).
In contrast to more reserved experts, a Japanese national residing in Shanghai, who goes by the name Xiao Hui, characterized China’s economy as a “super K-shaped” economy, citing various instances on no+e website on July 9.
The article points out that during economic downturns, the sales of lottery tickets tend to rise. In China, lottery sales had reached 600 billion yuan in 2024, indicating a surge not just in lottery prosperity but also in investment fraud, sideline scams, marriage scams, exploiting people’s desire to change their fortunes, which are becoming increasingly prevalent.
The analysis suggests that in today’s China, upward mobility through legitimate means has become challenging, fostering a breeding ground for such phenomena.
The author cleverly uses simplified Chinese characters in a prevalent phrase: “Economic downturns lead to widespread scams,” along with real-life examples of being swindled around him.
The article categorizes China’s economy as a “super K-shaped” economy, where the lack of upward mobility for the lower class results in a surge in lottery business activities and a rise in fraudulent practices exploiting individuals’ aspirations to change their destiny.
The author argues that one of the key features reflected by China’s “super K-shaped” economy is the erosion of the values of the middle class and low-income groups regarding the belief that hard work leads to success, with an upsurge in shortcuts like lotteries and increasing prevalence of scams.
In a “super K-shaped” economic environment in China, where formal employment may dwindle for many, transitioning to casual labor becomes more common, translating to the middle class shifting towards gig work.