China’s economy expanded at its slowest pace in more than three years during the second quarter, with weak household spending and falling investment offsetting robust manufacturing and export performance, raising fresh concerns over the sustainability of the country’s growth model.
Gross Domestic Product (GDP) grew 4.3% between April and June, slowing from 5.0% in the first quarter and falling below both market expectations and Beijing’s full-year growth target of 4.5–5.0%.
While the economy recorded 4.7% growth in the first half of 2026, remaining broadly within the government’s annual target, economists say the latest figures expose a widening imbalance between export-led manufacturing and sluggish domestic demand.
Consumers Continue to Tighten Spending
Official data showed retail sales increased just 1.0% in June, highlighting continued weakness in household consumption despite stronger industrial activity.
Industrial output rose 5.3%, suggesting China remains heavily dependent on manufacturing and overseas demand at a time when several trading partners have criticised the country’s export-driven growth model.
For many households, economic uncertainty continues to weigh on spending.
Jane Hou, who runs a European goods importing business in eastern China, said her income has nearly halved this year as sales weakened. She also said an apartment she rents has remained vacant for more than six months due to the prolonged property downturn.
“Apart from necessary spending on food, I save on anything I can,” Hou said. “I haven’t bought a single piece of clothing in six months.”
Property Slump and Weak Jobs Hit Confidence
China’s property crisis continues to drag on consumer confidence and investment.
Property investment fell 18% year-on-year during the first six months of 2026, while home prices continued to decline.
At the same time, industrial overcapacity, factory price wars, US tariffs and rapid AI adoption have contributed to job losses in manufacturing and slower hiring for white-collar workers.
Many workers have shifted into China’s rapidly expanding gig economy, relying on ride-hailing and food delivery platforms that often offer lower incomes and fewer employment benefits.
Emma Cheng, a nurse in the southern city of Guilin, said shrinking government finances had sharply reduced her income.
“In the past I would get gym memberships, beauty salon cards, Tencent Video subscriptions and replace my phone or iPad,” she said. “I don’t dare spend on such things now.”
Investment Weakens as Local Governments Cut Spending
Investment activity also remained under pressure.
China’s fixed-asset investment declined 5.7% in the first half of the year, while investment by state-owned entities also fell 2.3%, reflecting tighter spending by local governments already burdened with high debt levels.
Analysts say this leaves Beijing with fewer options to stimulate the economy without increasing fiscal risks.
Many economists believe policymakers are unlikely to unveil major stimulus measures during the Communist Party Politburo meeting later this month, despite growing calls to support domestic consumption.
Exports Remain the Main Growth Engine
China’s exports continue to provide the strongest support for economic growth.
Trade data released this week showed exports surged 27%, boosted by global demand linked to artificial intelligence and advance orders from overseas buyers seeking to avoid potential future tariffs.
However, economists warn that this momentum may not last.
The United States is expected to review tariffs on Chinese imports later this month, while the European Union is also considering additional measures to shield its industries from rising Chinese competition.
Renewed geopolitical tensions in the Middle East also pose risks to global trade and economic growth.
Economists Urge Stronger Domestic Demand
Economists argue that China’s biggest challenge is no longer simply achieving growth targets but ensuring that growth is balanced.
Zhiwei Zhang, Chief Economist at Pinpoint Asset Management, said policymakers broadly agree that domestic demand needs strengthening but remain divided on how to achieve it.
Larry Hu, Chief China Economist at Macquarie Group, believes Beijing is likely to continue relying on exports unless external demand weakens.
“When exports slow down, in order to still achieve the growth target, the government will do more on domestic demand,” Hu said.
For now, China’s economy remains heavily supported by manufacturing and exports, while subdued consumer confidence, weak investment and the ongoing property crisis continue to limit a broader recovery.
(with inputs from Reuters)
