China Economy Grows at Slowest Pace in Three Years

Economic growth of 4.3 percent in the second quarter, versus the same period last year, reflected a broad slump outside of the country’s export-oriented manufacturing might.

· GDP Growth Slows: China's economy grew 4.3% year-on-year in Q2 2026, down from 5% in Q1, marking the slowest growth in three years.

· Below Expectations: Growth fell short of economists' forecasts and reflected weak domestic demand.

· Exports Remain Strong: Exports surged 27% in June, driven by chips, batteries, electric vehicles (EVs), and AI-related products.

· Record Trade Surplus: China recorded a trade surplus of over US$125 billion in June, the second highest on record.

· Property Crisis Continues: The prolonged real estate downturn remains a major drag, with real estate investment falling 18%.

· Weak Consumer Spending: Retail sales increased only 1.3% in the first half of 2026, highlighting sluggish household consumption.

· Investment Declines: Overall fixed asset investment fell 5.7%, reflecting weakness in infrastructure and property sectors.

· Manufacturing Resilient: Industrial production grew 5.4%, while high-tech manufacturing expanded by over 13%.

· Iran Conflict Impact: Higher global fuel prices due to the Iran conflict reduced household spending on travel and transportation.

· Deflation Eases: China's GDP deflator turned positive in Q2, ending a prolonged period of deflationary pressure.

· Government Response: Premier Li Qiang emphasized boosting consumption, creating jobs, and supporting wage growth.

· Possible Stimulus: Markets expect additional economic stimulus measures from policymakers later this month.

· Retail Sales Target: Beijing aims to raise annual retail sales to US$8.85 trillion by 2030 and increase household consumption.

· Consumer Confidence Remains Weak: Chinese consumers continue to save cautiously amid declining property wealth and job uncertainty.

· Social Impact: The property downturn has eliminated over 14 million construction jobs, widening inequality between beneficiaries of the AI boom and the broader population.

Key Takeaway

China's economy is increasingly dependent on exports and high-tech manufacturing, while weak consumer demand, the property crisis, and sluggish investment continue to weigh on overall growth, prompting expectations of further government stimulus.

[ABS News Service/15.07.2026]

China’s economy last quarter grew at the slowest rate in three years, reflecting a broader slump that the country’s leaders signaled earlier this year when they set the lowest growth target in more than three decades.

On Wednesday, that National Bureau of Statistics said that the economy expanded by 4.3 percent in the second quarter, compared to a year ago, down from a 5 percent pace in the first quarter and short of economists’ expectations.

Although China’s factories are churning out chips and electric cars to supply a global boom in artificial intelligence and energy-saving products, many Chinese people are feeling squeezed at home.

A long-running property crisis has no end in sight, with steep declines in construction dragging down economic growth. Jobs outside of factories are hard to come by and paychecks are not growing. Retail sales of consumer goods have been choppy. They fell in May, for the first time since the end of Covid-19 lockdowns in late 2022, before recovering somewhat in June.

That is in stark contrast to China’s relentless strength in manufacturing and trade, with a government report released on Tuesday showing China’s exports surging by 27 percent in June compared with a year earlier, driven by shipments of chips, batteries and cars. China’s trade surplus in June, at more than $125 billion, was second largest on record.

In other words, China’s mighty export machine is masking weaknesses elsewhere.

“You get this A.I. boom, which is a global thing, and China is part of the leading nations on the frontier,” said Yu Song, the chief China economist at UBS Securities. “Without this, China’s economy would be in a much worse state.”

When measured on a quarter-to-quarter basis, China’s economy expanded by only 0.9 percent in the second quarter. When projected out for a year, the second-quarter data implies that the economy was growing at an annual rate of 3.6 percent, sharply down from a pace of more than 6 percent in the first quarter.

The second-quarter annualized rate also missed official targets. Shortcomings in China’s economic growth drivers prompted the ruling Communist Party earlier this year to set the lowest annual growth target in decades, with a goal of between 4.5 percent and 5 percent this year.

Stepping back to consider the trends in the first half of the year, economists say that China’s manufacturing and export prowess, however robust, cannot carry growth on its own.

Industrial production rose by 5.4 percent in the first six months of the year, versus the same period last year. High-tech manufacturing rose by more than 13 percent over that period. But fixed asset investment — which includes infrastructure, property construction and manufacturing — fell by 5.7 percent. Real estate development dropped 18 percent.

The value of China’s exports surged by more than 20 percent in the first half. But consumer spending, which a Moody’s Analytics report said “remains the economy’s weakest link,” faltered. Retail sales of consumer goods increased by 1.3 percent over the first half of the year.

The effects of the war in Iran have pinched Chinese households, with rising fuel prices prompting them to drive and fly less, at a time when many were already worried about the economy and choosing to save more.

China has softened the blow of rising fuel costs by controlling the price at the pump, but the cost of filling up for drivers is still double-digit percentages higher than a year ago.

One silver lining, economists said, was that rising fuel prices started to feed through to broader inflation in the quarter, reversing a problem that China has struggled to shake: more than three years of a broad-based decline in prices. Such deflation tends to chill spending, with consumers putting off purchases in expectation that prices will be lower in the future.

China’s gross domestic product deflator, a broad measure of prices across the economy, was negative in 13 of the past 14 quarters — the most protracted slump on record. But it turned positive in the second quarter.

For China’s leadership, the question now is, what to do next? Li Qiang, China’s premier, told a group of entrepreneurs this week that officials were focusing on new drivers of consumption and ensuring job stabilization.

“It is important to take a comprehensive and objective view of the current economic situation, fully recognizing the achievements made while remaining cleareyed about the problems,” said Mr. Li, according to state media, which ran a story about the meeting on the front page of the official People’s Daily.

Some economists anticipate a discussion of fresh stimulus measures at a meeting of top policymakers later this month. On Monday, officials announced a plan to target $8.85 trillion of annual retail sales by 2030, implying a 20 percent rise from last year.

Beijing also promised to raise wages and increase household consumption as a share of the economy. It is currently around 40 percent, significantly lower than the 60 percent share of gross domestic product for most developed countries.

But analysts said these goals are not particularly ambitious. And stubbornly reluctant consumers in China show few signs of opening their wallets further.

On social media forums, shoppers share tips on how to scrimp and save, rallying around the motto to “save where you can, spend where you must.”

Users share tips about “shopping cart cooling-off periods,” or leaving nonessential items in carts for three days before deciding to buy them. (The practice is a wry nod to the officially enforced “cooling-off period” for couples seeking divorces.)

Others push to replace foreign cosmetic brands with cheaper local alternatives, and to substitute skin care products with baby lotion. “Buy what’s right, not what’s pricey,” a user on the social media network Weibo posted recently.

All the while, sales have continued to fall for products as varied as cosmetics and automobiles. For categories like cars, the recent plunge has been accentuated by the end of a policy to incentivize purchases.

Since a devastating property crash, Chinese policymakers have tried to replace the growth generated by the real estate sector with more robust consumer spending. They rolled out huge subsidies for households to trade in old cars, home appliances and phones from 2024 through last year.

While it generated some activity, the policy failed to address the plummeting value of property, where most household wealth is concentrated. Now, economists say, China is in a “payback period” following the jump in policy-induced sales.

As the economy splits between the relatively few who benefit from China’s role in the global A.I. boom and the rest, the divide is having a profound impact on the country’s social fabric.

China’s property bust has led to more than 14 million people losing construction jobs. Many of those workers bought apartments in smaller cities, far from the pockets of A.I.-generated wealth that may revive parts of the property market.

The A.I. boom “doesn’t benefit ordinary people in China because this priority, the industrial focus on high tech and semiconductors, actually causes structural unemployment and underemployment,” said Dan Wang, the China director at Eurasia Group, a consulting firm.

What’s more, Ms. Wang said, disposable income growth is now lower than economic growth. If that continues, she noted, “that means the national income is skewed in distribution toward government and companies, and not consumers.”