China's economic growth hits slowest pace in more than three years
China's economy grew 4.3% year on year in the second quarter, its weakest pace since late 2022, as weak domestic demand and a prolonged property downturn outweighed strong exports, increasing pressure on Beijing to provide more economic support.
China's economy slowed sharply to 4.3% year-on-year growth in the April-June quarter, the government said Wednesday, the weakest pace in over three years.
The official data fell short of forecasts and was well below the economy's strong 5% growth pace in January-March, despite a surge in exports, driven in part by the artificial intelligence boom and robust global demand for Chinese electric vehicles.
"This was the slowest growth in any quarter since the lockdown-impacted fourth quarter of 2022," said Lynn Song, chief economist for Greater China at ING Bank, in a note.
China has largely shrugged off the wider economic impact of the war in Iran as soaring energy prices have pushed up global inflation. Exports rose 17.6% in the first half of the year compared with a year earlier, and 27% in June, according to customs data.
Despite the broader economic slowdown, there were some signs of resilience in consumer spending. According to the National Bureau of Statistics of China, retail sales rose 1.0% in June from a year earlier, rebounding from a decline in May and beating expectations. Sales of communication equipment and cosmetics were particularly strong, while purchases of cars and other big-ticket items remained weak.
Industrial production also exceeded expectations, rising 5.3% in June from a year earlier and accelerating from May, driven by stronger manufacturing output.
Why is China's economy slowing?
Some economists say China's economy is becoming increasingly unbalanced as heavy state support and private investments pour into frontier technologies such as AI, computer chips and robotics, while other areas such as lower-value manufacturing and job-creating service industries languish.
Exports of high-tech products such as electric vehicles, computer chips and other electronic equipment have risen sharply, helped by hefty government support after China's leaders made development of advanced technologies a top priority.
Can exports keep driving growth?
China ran a record global trade surplus of $1.2 trillion (€1.05tr) last year, drawing complaints from policymakers in other countries over their trade imbalances with the world's second-largest economy. Many have pointed to those heavy state subsidies, which they say contribute to an oversupply of manufactured goods that end up being exported overseas.
As is true in many countries, the expansion of AI and robotics has also raised worries at home over whether businesses will create enough jobs to sustain growth in the longer term.
As China remains reliant on its exports to sustain overall growth, "China's growth model has become increasingly imbalanced," said Eswar Prasad, a professor of economics and trade policy at Cornell University. Substantially increasing domestic demand will be tough as confidence remains weak, he added.
Mao Shengyong, deputy head of China's National Bureau of Statistics, told reporters that, given the increasingly unstable and uncertain global situation, the imbalance between strong supply and weak demand "remains acute" at home.
As China focuses on high-tech manufacturing and pursues "higher-quality economic growth," it will work to build a robust domestic market and offer support to keep employment stable, he said.
China's economy is going through a "significant transition," said Wei Li, head of Multi-Asset Investments at BNP Paribas Securities (China).
For the whole of 2026, Chinese leaders have set a growth target of between 4.5% and 5%, slower than last year's 5%. Overall economic growth for the first half of the year was 4.7%, the data released Wednesday showed.
The International Monetary Fund recently raised its forecast for China's annual growth by 0.2 percentage points to 4.6%. It expects China's economy to expand by just 4.1% in 2027.
