Key Takeaways
- China’s economy grew 4.3%, missing expectations and its annual growth target.
- Weak consumer spending continues to outweigh strong export performance.
- Iran-related trade disruptions and higher energy costs increase economic uncertainty.
China’s economy grew 4.3% in the second quarter, missing expectations and its annual growth target for the first time since the COVID-19 pandemic, as weak domestic demand and global trade disruptions weighed on activity. The slowdown in China economic growth marks the weakest pace in years for the world’s second-largest economy.
China’s National Bureau of Statistics said Wednesday that gross domestic product expanded 4.3% in the April-June quarter from a year earlier, below analysts’ expectations of 4.5%. The result also fell short of Beijing’s annual growth target of 4.5% to 5%. CNN reported that the figures represent a rare admission of economic weakness for a government that has long worked to prop up industrial activity through infrastructure investment and exports.
The weaker performance reflects slowing consumer spending despite strong exports and government efforts to support economic growth through infrastructure investment. Analysts said the data highlight persistent weakness in household demand and investment, underscoring how uneven China economic growth has become across sectors.
A slowdown in the housing market and a challenging job market continue to discourage consumer spending. Earlier this week, Beijing released a five-year policy plan aimed at boosting consumption and increasing annual retail sales to about $9 trillion by 2030.
Fixed asset investment fell 5.7% year over year during the first half of 2026, while property investment dropped 18%, signaling continued weakness in two traditional drivers of China’s economy.
“No domestic demand, all about exports — it’s really quite unsustainable, to be frank,” Alicia Garcia-Herrero, chief economist for Asia Pacific at Natixis, said.
Iran conflict adds pressure to global trade
Economists said China’s economy also faces growing pressure from rising energy costs linked to the conflict involving Iran, which has disrupted global trade and commodity markets.
Higher oil prices helped end a prolonged period of deflation in China, but they also increased production costs and raised concerns about consumer spending. Crude oil prices climbed as high as $114 a barrel in May as tensions in the Middle East disrupted supplies through the Strait of Hormuz — a sharp contrast to the recent stretch of energy costs tied to the Iran conflict easing as global supply improved.
The International Monetary Fund said renewed conflict in the Middle East could extend commodity price volatility, threaten supply chains, and tighten financial conditions.
Earlier this month, the IMF raised its 2026 growth forecast for China to 4.6% from 4.4%, citing strength in high-tech manufacturing and exports. At the same time, it lowered its global growth forecast to 3%.
Woei Chen Ho, an economist at UOB focusing on Greater China, said targeted policy measures could help stabilize the economy and support China economic growth going forward.
“While a large-scale stimulus package appears unlikely, selective and targeted measures to bolster consumption and investment could help stabilize China’s economic momentum,” Ho said.
Exports provide support, but risks remain
Exports remained a bright spot for China’s economy during the second quarter, rising 27% from a year earlier on strong shipments of semiconductors and computer parts. China also exported more than 1 million vehicles in June for the first time.
Imports increased 36% from a year earlier, while China’s trade surplus widened to $125.62 billion. Officials said the country will continue expanding imports to encourage balanced trade.
Analysts cautioned that relying heavily on exports leaves China vulnerable if global demand weakens, particularly in technology sectors driving recent growth.
Julian Evans-Pritchard, head of China economics at Capital Economics, said the latest figures suggest authorities may be reporting economic performance more accurately.
“The authorities appear willing to curb overreporting and allow published growth to come in near the bottom of their target range,” Evans-Pritchard said in a research note.
