Foreign Institutions Back China’s Economy on Innovation

Foreign investment institutions are expressing sustained confidence in China’s economic prospects, citing the country’s innovation-driven growth and new momentum sectors as key factors underpinning their positive outlook. The sentiment comes as China’s economy continues to demonstrate resilience despite facing both domestic and external challenges.

According to Xinhua News, the Central Political Bureau meeting held in late July stated that “China’s economy is showing a development trend of new momentum and structural optimization,” while also acknowledging the need to “attach great importance to difficulties and challenges in economic operations.”

Strong H1 Performance Driven by New Momentum

China’s gross domestic product grew 4.7% year-on-year in the first half of 2026, meeting the annual growth target, according to data from the National Bureau of Statistics. More notably, new growth drivers—including high-end manufacturing, the digital economy, and modern services—contributed over 40% to economic growth during the period.

High-tech manufacturing value-added grew 13.3% year-on-year in H1 2026, with aerospace equipment manufacturing up 16.3% and electronic and communication equipment up 17%. AI-related integrated circuit manufacturing and smart vehicle equipment manufacturing both grew by more than 30%. New energy vehicle retail penetration exceeded 60% for three consecutive months, while China’s new energy storage installed capacity now accounts for approximately 50% of the global total.

The innovation momentum extends to the pharmaceutical sector as well. China’s innovative drug out-licensing deals totaled approximately $110 billion in H1 2026, reaching 80% of the full-year 2025 total and setting a new record, as reported by the National Medical Products Administration.

Foreign Institutions Voice Confidence

International financial institutions have been notably bullish on China’s economic trajectory. Moody’s maintained China’s sovereign credit rating at “A1” and upgraded the outlook to “stable,” while Fitch raised China’s 2026 growth forecast to 4.6%. Major international investment banks including Goldman Sachs, JPMorgan, UBS, and Citi maintain overweight or buy ratings on China’s A-shares, with Citi upgrading Chinese stocks to “overweight” in July 2026, as reported by 21jingji.

Fitch Ratings Director of Asia-Pacific Sovereign Ratings Jeremy Zook noted that “China is clearly a core link in the global supply chain, with certain price advantages,” adding that multiple factors combine to keep China’s exports consistently strong.

Taimur Baig, DBS Group Chief Economist, highlighted China’s long-term foundations: “Over the past decades, China has laid a solid foundation in education, R&D, and industrial investment, which will drive high-tech, green technology, and services to continuously create high added value and become an important source of economic growth.”

AI and Advanced Manufacturing as Core Investment Logic

Foreign institutions have identified China’s AI industry and advanced manufacturing capabilities as central to their long-term investment thesis. Rob Subbaraman, Nomura’s Global Macro Research Head and Co-Head of Global Market Research, emphasized that “China’s low-cost and massive power capacity, continuously growing talent pool, and leading position in large models and physical AI are driving rapid development of the AI industry chain.”

Chinese AI companies like DeepSeek and Moonshot AI (Kimi) have released open-weight models with strong performance and low token costs, expanding AI applications across industries. Kimi K3, with 2.8 trillion parameters and a 100 million token context window, was fully open-sourced in late July 2026, as detailed by ChinaVenture.

Morgan Stanley China Chief Economist Xing Ziqiang noted that “China’s competitive advantages in advanced manufacturing are equally prominent—new energy vehicle global penetration exceeds 60%, new energy storage installed capacity accounts for about 50% of global share, and innovative drug out-licensing transaction values are rising rapidly. These constitute the long-term investment logic for foreign capital in China’s hard technology and leading manufacturing enterprises.”

Dan Ives, Wedbush Securities Global Head of Technology Research, observed that “the next phase of growth for China’s AI industry is just beginning, with future growth points in the robotics sector.”

Policy Support and Infrastructure Investment

The “six networks” infrastructure plan—covering water, new-type power grid, computing power, new-generation communication, urban underground pipeline, and logistics networks—has emerged as a key driver for expanding domestic demand and stabilizing growth. As Shaanxi Daily reported, investment in these networks and related key areas exceeds 7 trillion yuan in 2026 alone.

DBS Bank Senior Economist Zhou Hongli noted that “as an important lever for expanding domestic demand and stabilizing growth, the ‘six networks’ plan can effectively offset downward pressure on private investment in the short term, and in the medium-to-long term is expected to significantly reduce logistics and energy costs across society, optimize resource allocation, and boost potential economic growth.”

The July 30 Central Political Bureau meeting called for “strengthening counter-cyclical adjustment” and “expanding domestic demand and optimizing supply.” In response, the People’s Bank of China conducted a 500 billion yuan outright reverse repo operation in early August, as reported by 21jingji.

UBS Securities China Chief Economist Song Yu emphasized the need for policy coordination: “Economic operations require coordination between ‘releasing the brake’ and ‘stepping on the accelerator.’” He stressed the importance of accelerating fiscal expenditure, bond fund utilization, and removing obstacles to consumer spending.

Outlook for the Second Half

Foreign economists remain cautiously optimistic about China’s H2 2026 trajectory. Zhou Hongli projected that “with strengthened counter-cyclical adjustment and effective implementation of macro policies, China’s economy is expected to show a stable and progressive trajectory in H2, with major annual targets expected to be achieved smoothly.”

The positive outlook is reinforced by improving economic indicators. China’s PPI turned positive in March 2026 after 41 consecutive months of decline, expanding to 2.8% in April and 3.9% in May. Foreign investment in high-tech industries grew 30.7% year-on-year in Q1 2026, with R&D and design services growing 127.8%.

As Shanghai Securities News reported, Citi views China as the preferred destination for capital rotation in emerging markets, citing low investor positioning, declining international oil prices, and improving global growth conditions as key supporting factors.

What to Watch

Looking ahead, market observers will be monitoring several key developments: the pace of fiscal expenditure and bond issuance in the coming months, the implementation of the “six networks” infrastructure projects, and the continued evolution of China’s AI ecosystem. The extent to which policy measures translate into sustained consumption recovery and private investment growth will be critical to validating foreign institutions’ confidence.

With the Politburo’s emphasis on counter-cyclical adjustment and the deployment of new policy financial instruments, the second half of 2026 presents a critical test of whether China’s innovation-driven growth model can continue to deliver stability amid global economic uncertainty. The sustained interest from foreign institutions suggests that the market is watching closely—and largely expecting positive outcomes.