China’s economy grew at its weakest pace in more than three years during the second quarter, data showed on Wednesday, missing expectations even as strong exports fueled by the global AI boom helped offset trade disruptions caused by the war in the Middle East.
The 4.3 percent year-on-year expansion reported by the National Bureau of Statistics (NBS) for the April-June period was less than the 4.5 percent forecast in an AFP survey of economists and the slowest growth since the fourth quarter of 2022.
It was also short of Beijing’s target of 4.5-5.0 percent annual rate, which is the lowest in decades.
A multi-year crisis in the property sector and a continued decline in domestic spending have left leaders dependent on exports to meet growth targets.
However, the US-Israeli war against Iran has threatened it, as it chokes shipping through the Strait of Hormuz – a vital transit route through which a fifth of global oil and natural gas normally passes.
“In the first half of the year, the national economy operated within a reasonable range,” NBS said in a statement.
“There are many unstable and uncertain external factors and the internal contradiction of strong supply and weak demand is evident. The foundations for improving the economy still need to be consolidated,” he added.
NBS data also showed retail sales rose 1.0 percent year-on-year in June, beating a Bloomberg forecast for a 0.1 percent decline.
And industrial production rose 5.3 percent last month, beating a Bloomberg estimate of 4.6 percent.
But in a bleak sign, fixed asset investment fell 5.7 percent year-on-year in the first half.
AI-driven export boom
Domestic demand weakened by low income expectations remains China’s “weakest link”, Yue Su of the Economist Intelligence Unit told AFP.
“We therefore expect policymakers to put more emphasis on boosting consumption in the second half of the year and early 2027” through fiscal stimulus packages, raising the minimum wage or steering wage growth toward frontline workers, she said.
But analyst Zhang Zhiwei said the government is unlikely to change its policy stance in the coming months as a result of the latest figures.
“We should note that GDP growth in the first quarter was strong at five percent. This means the government is still on track to deliver growth in line with the official (annual) target they set at 4.5-5 percent,” Zhang wrote in a note.
“The export boom just continues to beat expectations and is likely to remain strong in the short term,” he added.
The closely watched figures followed data on Tuesday that showed exports rose 27.0 percent year-on-year in June as the global AI boom helped boost demand for chips and computer hardware.
China’s semiconductor exports doubled in value in June from a year earlier, while shipments of data processing equipment rose 53.1 percent from a year earlier.
But that expansion was “entirely a price story driven by the continued shortage of memory chips,” Capital Economics’ Julian Evans-Pritchard said on Tuesday, noting that the volume of semiconductor exports actually fell year-on-year in June.
Tensions with the United States and the European Union remain a source of friction.
China remains locked in a trade spat with the EU, with which it recorded a trade surplus of $32.9 billion in June.
And while ties between Washington and Beijing have stabilized since US President Donald Trump visited Beijing in May, a trade imbalance and rivalry over chipmaking persist.
