China's economy showed a sharp slowdown in growth during the second quarter, reaching 4.3%, the lowest figure since 2022. This deceleration was attributed to weak domestic demand and issues in the real estate sector, which outweighed strong exports supported by demand for AI chips and electric vehicles.
Economic Indicators in the First Half of 2026
The National Bureau of Statistics (NBS) announced on Wednesday that China's Gross Domestic Product (GDP) grew by 4.7% year-on-year in the first half of 2026, generating approximately 69.57 trillion yuan (about $10.25 trillion USD) in revenue.
However, in the April-June quarter, the world's second-largest economy slowed to 4.3%, down from 5% growth in the first quarter, falling below China's set annual target.
Impact of External and Internal Factors
The GDP data for the first full quarter since the war between the US and Iran began in February were the lowest since late 2022, a period when China emerged from strict COVID-19 restrictions. This data was released one day after customs authorities reported a 27% year-on-year increase in China's exports in June, highlighting the economy's growing reliance on foreign demand amid weak domestic consumption.
The Chinese government had previously lowered its annual growth target in March to the range of 4.5–5%, the lowest level since 1991. This change was made in light of expectations that the adjusted target would give policymakers more room to respond to domestic and global economic challenges.
Real Estate Market and Consumer Confidence Issues
NBS noted in its first-half report that the economy faces 'greater external instability and uncertainty factors,' as well as a persistent imbalance between active industrial production and weak domestic demand. The slowdown reflects the difficulties the economy is facing due to the protracted downturn in the real estate market, declining consumer confidence, and rising external risks.
According to official data, new housing prices continued to fall in June, although the rate of decline slowed to 0.1% compared to the previous month. Fabien Ip, a market analyst at the investment platform IG, told the BBC that Chinese businesses are absorbing higher energy and raw material costs because 'demand at the checkout is too weak to sustain it.' He added that the situation will become more complicated with the prolongation of the US-Iran war.
Exports and Industrial Production
Customs data for June, published on Tuesday, showed that China's technological exports were boosted by high global demand for semiconductors powering artificial intelligence (AI) data centers. Increased demand for Chinese electric vehicles (EVs) also significantly supported China's exports, with monthly vehicle exports exceeding one million units for the first time.
Nevertheless, real estate investment, a long-standing drag on economic growth, fell by 18% in the first half, compared to a 16.2% drop in the first five months, according to NBS. Industrial production grew by 5.3% year-on-year in June, an increase from 4.5% growth in May.
Expert Commentary and Outlook
The overall urban unemployment rate in China was 5% in June, although unofficial data suggests the unemployment rate among the 16–24 age group is above 15%. Tang Junyu, a regional economist for North Asia at Coface insurance company, noted that 'the second-quarter data highlights the deepening divergence between domestic and external demand.' He added that while exports were supported by demand for AI equipment and 'green technology,' domestic consumption suffered due to the slump in real estate.
Su Jian, a professor of economics at Peking University, suggested that Beijing is unlikely to launch large-scale aggressive stimulus measures in the coming months. However, he believes the authorities may introduce additional support measures focused on 'new infrastructure' in the second half of the year, as investment growth continues to weaken and regulators seek to prevent systemic risks.
Mao Shengyun, Deputy Head of NBS, told the media upon the data release that the growth rate met the annual target. He also noted that despite the slowdown in the second quarter, the economy remains stable, and its fundamental trend toward innovative and high-quality development remains unchanged. Mao emphasized that the economy's resilience helped the country effectively manage risks and challenges, given its adequate energy supply, moderate inflation, and solid foreign trade figures in the first half.
