China’s economy expanded at its slowest pace in more than three years during the second quarter of 2026, falling short of expectations despite a strong rise in exports fueled by global demand for artificial intelligence technology.
Figures released by the National Bureau of Statistics (NBS) showed that gross domestic product (GDP) grew 4.3% year-on-year between April and June. The result was below the 4.5% forecast by economists surveyed by AFP and marked the weakest quarterly growth since the final quarter of 2022.
The latest reading also fell below Beijing’s annual growth target of 4.5% to 5%, which is already the country’s lowest official target in decades.
China has struggled with a prolonged property market downturn and subdued consumer spending, leaving exports as a key driver of economic activity. However, trade has faced fresh uncertainty following the US-Israeli war on Iran, which disrupted shipping through the Strait of Hormuz, a route that normally carries about one-fifth of the world’s oil and natural gas supplies.
In a statement accompanying the data, the NBS said the economy remained within a reasonable operating range during the first half of the year but warned that external risks and weak domestic demand continue to weigh on growth.
“There are many unstable and uncertain external factors, and the domestic contradiction of strong supply and weak demand is prominent. The foundation for the economy to improve still needs to be consolidated,” the bureau said.
Despite the slower GDP growth, several economic indicators exceeded expectations. Retail sales increased 1% year-on-year in June, outperforming forecasts that had predicted a slight decline. Industrial production also showed resilience, rising 5.3% compared with estimates of 4.6%.
At the same time, fixed-asset investment dropped 5.7% during the first six months of the year, reflecting continued weakness in business investment and the property sector.
Economists said weak household spending remains one of China’s biggest economic challenges. Yue Su of the Economist Intelligence Unit said policymakers are likely to focus more heavily on boosting domestic consumption through fiscal stimulus, higher minimum wages and stronger income growth for frontline workers during the second half of the year and into early 2027.
Others believe the government is unlikely to introduce major policy changes immediately. Zhang Zhiwei said first-quarter GDP growth of 5% keeps China broadly on track to meet its annual target, reducing pressure for additional stimulus.
Exports continued to provide support for the economy. Trade data released earlier showed exports jumped 27% year-on-year in June, helped by soaring global demand for AI-related chips and computing equipment. Semiconductor exports more than doubled in value, while shipments of data-processing equipment climbed 53.1%.
Julian Evans-Pritchard of Capital Economics cautioned that much of the increase reflected higher chip prices caused by global memory shortages rather than stronger export volumes.
China also continued to post a trade surplus of $32.9 billion with the European Union in June, while trade tensions with both the EU and the United States, particularly over semiconductors and market imbalances, remain unresolved despite improving diplomatic relations.
