China’s economy lost momentum in the second quarter, with slower growth falling below the government’s target as weak domestic demand and rising energy costs linked to the Iran conflict outweighed record export performance.
China’s economy expanded at a slower pace between April and June, highlighting growing challenges for policymakers despite a surge in exports driven by strong global demand for technology products and electric vehicles.
Official figures released on Wednesday showed the world’s second-largest economy grew by 4.3% in the second quarter, down from 5% in the first three months of the year and below Beijing’s annual growth target.
The latest data marks China’s weakest quarterly economic expansion since late 2022, when the country was emerging from its strict COVID-19 restrictions.
China’s National Bureau of Statistics acknowledged the economy is facing increasing uncertainty, pointing to external risks and an ongoing imbalance between production and domestic demand.
“There are more external instability and uncertainty factors,” the statistics agency said, adding that consumer demand remains too weak to match the country’s manufacturing output.
The figures come just a day after customs data showed Chinese exports jumped 27% in June compared with the same period last year, underscoring the resilience of the country’s manufacturing sector even as spending at home remains subdued.
Earlier this year, Beijing lowered its economic growth target to a range of 4.5% to 5%, the country’s most modest annual goal in more than three decades. Economists say the lower target gives authorities greater flexibility as they navigate mounting economic pressures.
The April-to-June period also represents the first full quarter since fighting involving Iran erupted in late February, sending oil prices higher and increasing production costs for businesses around the world.
Although Chinese manufacturers have continued shipping record volumes overseas, higher energy prices have added pressure to an economy already struggling with weak household spending and a prolonged downturn in the property market.
Fresh housing data released alongside the GDP report showed new home prices continued to decline in June. While the pace of the fall eased slightly compared with May, the property sector remains one of the biggest drags on economic activity.
There were, however, signs of modest improvement elsewhere.
Retail sales increased by 1% in June, reversing a decline recorded the previous month and suggesting consumer spending may be showing early signs of recovery.
Fabien Yip, a market analyst at investment platform IG, said many Chinese companies are being forced to absorb rising production costs because consumers remain reluctant to spend.
“Businesses are absorbing higher energy and raw materials costs because demand at the till is too weak to bear it,” Yip said, adding that prolonged conflict in the Middle East could place even greater strain on manufacturers if oil prices remain elevated.
Not all analysts believe the weaker GDP reading signals a dramatic deterioration.
Julian Evans-Pritchard, Head of China Economics at Capital Economics, argued that the lower figure may partly reflect a more realistic assessment by Chinese authorities rather than a sudden slowdown in economic activity.
According to Evans-Pritchard, Beijing’s decision to reduce its growth target may have given officials greater room to acknowledge existing weaknesses that had previously been understated.
He said recent economic indicators, including June’s retail sales and export figures, suggest conditions may be stabilising rather than worsening.
Exports continue to be one of China’s strongest economic pillars.
Demand for semiconductors used in artificial intelligence infrastructure helped lift technology exports, while overseas appetite for Chinese-made electric vehicles reached new highs.
China exported more than one million vehicles in a single month for the first time in June, underlining the growing global influence of its automotive industry.
Despite that export strength, economists say China’s recovery will ultimately depend on whether consumer confidence improves and the property market stabilises. Until then, policymakers are expected to face increasing pressure to introduce additional measures to support domestic demand while navigating a more uncertain global economy.
