China’s economy experienced a significant slowdown in the April-June quarter, posting a 4.3% annualized growth rate. This marks the weakest performance in over three years. The official data, released by the government on Wednesday, fell short of forecasts and stood below the 5% growth rate seen in the first quarter of the year. Despite strong exports fueled by a boom in artificial intelligence and global demand for Chinese electric vehicles, China’s economy has struggled.
The ongoing war in Iran has not severely impacted China, although global inflation has risen due to soaring energy prices. Chinese exports increased by 17.6% during the first half of the year compared to the previous year and surged by 27% in June, according to customs data. However, domestic spending and investment lagged, limiting the benefits from export manufacturing.
Lynn Song, Chief Economist for Greater China at ING Bank, noted that this was the slowest growth since the lockdown-affected fourth quarter of 2022. Economists have warned of an increasingly unbalanced economy, with significant investments channeled toward AI, computer chips, and robotics, while other sectors such as manufacturing and service industries experience slow growth.
Advanced technology exports, including electric vehicles and computer chips, have seen significant growth with substantial government support. Last year, China recorded a $1.2 trillion global trade surplus, raising concerns among international policymakers about trade imbalances.
There are also domestic worries about the job market amid AI and robotics expansion. Chinese consumers have cut back on major purchases due to a sustained property slump and job uncertainty. Eswar Prasad from Cornell University suggests that China’s growth model has become more imbalanced, with weak domestic confidence making it challenging to boost domestic demand.
Mao Shengyong, of China’s National Bureau of Statistics, highlighted the imbalance between strong supply and weak domestic demand. As China focuses on high-tech manufacturing, it aims to foster a robust domestic market and maintain stable employment. Investment in fixed assets fell 5.7% year-on-year in the first half of the year, while retail sales of consumer goods only rose by 1.3%. Housing prices continued to decline.
China is undergoing a significant economic transition, according to Wei Li, Head of Multi-Asset Investments at BNP Paribas Securities (China). For 2026, Chinese leaders have set a growth target of 4.5% to 5%, lower than last year’s 5% target. Overall economic growth for the first half of the year was 4.7% as per official data.
The International Monetary Fund (IMF) has adjusted its forecast for China’s annual growth upward by 0.2 percentage points to 4.6%, projecting a growth rate of 4.1% for 2027.