China's economy is accelerating through an AI supercycle that is concentrating growth in semiconductor, hardware, and technology manufacturing while leaving traditional sectors and consumer demand behind. Daily AI token usage has exploded to 140 trillion as of March 2026, AI-related exports now represent over one-fifth of total exports and grew 34.8% in early 2026, and intelligent computing capacity tripled year-over-year. However, consumer confidence remains depressed, retail sales contracted in May, and investment in traditional sectors faces mounting pressure—creating a widening economic divide that policymakers appear content to manage rather than eliminate through broad stimulus.
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China's economy is increasingly shaped by an AI supercycle, with daily token usage surging to 140 trillion in March from 100 billion at the start of 2024, and intelligent computing capacity tripling in 2025 versus 2024. AI-related exports accounted for 20.3% of total exports in 2025 and grew 34.8% year over year in the first five months of 2026. A new Citi Research report from Chief China Economist Xiangrong Yu examines how this trend is deepening China's K-shaped economy—widening the gap between thriving AI-related sectors and struggling traditional industries.
Why it matters
The AI boom is reinforcing economic divergence rather than generating broad recovery. Consumer confidence has remained negative for over four years, and retail sales contracted in May for the first time since Covid, even as AI-related investment and production accelerate. Traditional sectors face mounting headwinds while profits concentrate in AI supply chains and upstream industries. For businesses reliant on domestic consumption or outside AI infrastructure, this suggests continued margin pressure and uneven market conditions.
What to watch
Citi maintains a 2026 GDP growth forecast of 4.7% year over year and raises export growth forecast to 13.0% year over year, with the trade surplus projected around $1.1 trillion（約180兆円）. The second quarter is expected to represent the low point of the year due to Middle East shocks and delayed fiscal deployment, with conditions expected to improve in the second half. Nominal growth could reach a five-year high of 6.7% in 2026.
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