China's economic growth hits slowest pace in more than three years

China's economy expanded at its slowest pace in more than three years during the second quarter, with data showing a 4.3 percent year-on-year growth that fell short of economists' expectations.

The National Bureau of Statistics reported the figures on Wednesday, revealing a growth rate lower than the 4.5 percent predicted in an AFP survey. This marks the weakest expansion since the fourth quarter of 2022 and falls below Beijing's annual target of 4.5-5.0 percent, which is already one of the lowest in decades.

“

In the first half of the year, the national economy operated within a reasonable range. 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.

A prolonged crisis in the property sector and a persistent slump in domestic spending have forced leaders to rely heavily on exports to meet growth targets. However, the ongoing conflict in the Middle East, particularly disruptions through the Strait of Hormuz, poses a threat to this strategy.

“

Domestic demand dampened by low income expectations remains China’s “weakest link”. We therefore expect policymakers to place greater emphasis on boosting consumption in the second half of the year and into early 2027 through fiscal stimulus packages, increased minimum wages or directing wage growth towards frontline workers.

Despite the overall slowdown, some indicators showed resilience. Retail sales in June grew 1.0 percent year-on-year, exceeding forecasts, and industrial production rose 5.3 percent last month. Conversely, fixed-asset investment declined 5.7 percent in the first half of the year.

Analysts suggest that weak domestic demand, driven by low income expectations, remains China's "weakest link." Some anticipate policymakers will focus on boosting consumption through fiscal stimulus and wage increases in the latter half of the year and into 2027. However, others believe the government is unlikely to significantly alter its policy stance in the immediate months, given that the first quarter's strong five percent growth still keeps the annual target within reach.

“

We need to keep in mind that the first-quarter GDP growth 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. The export boom just continues to beat expectations, and it will likely remain strong in the short term.