China: August data shows increasingly K-shaped divide — IP jumped on export strength, domestic demand weak

August activity data were mixed, with a widening gap between production vs. domestic demand. IP rebounded, helped by export strength, but retail sales were flat and FAI contraction stayed elevated. The economy is increasingly K-shaped, with high-tech IP/FAI and services sales outperforming. Fiscal catch-up is finally taking hold, with acceleration in CGB issuance and rollout of the policy bank tool, which will support FAI recovery with a lag. The stronger IP and fiscal catch-up leaves 2H forecast risk more balanced, though additional policy support remains likely amid rising external risks and lingering domestic demand weakness. The August activity data reveal increasingly K-shaped divergences and persistent imbalances across the Chinese economy: first, the divergence between production and domestic demand, as well as between external and domestic demand, remains pronounced;