China's economy expanded at its weakest pace in more than three years in the second quarter of 2026, with GDP growth cooling to 4.3% between April and June, down from 5% in the first quarter and falling short of Beijing's already-reduced annual target of 4.5% to 5%. The figures, released Wednesday by China's National Bureau of Statistics, mark the slowest quarterly expansion since late 2022, when the country was still emerging from its strict Covid-19 restrictions. Officials acknowledged "more external instability and uncertainty factors" and flagged a growing imbalance between robust industrial supply and persistently weak domestic demand.

The headline number masks a deeply uneven economy. Industrial output rose 5.3% in June and exports surged 27% year-on-year — partly driven by global demand for semiconductors powering artificial intelligence data centres and by Chinese electric vehicle sales, with monthly car exports topping one million units for the first time. Yet retail sales grew just 1% in June, recovering slightly from a 0.6% decline in May, and fixed-asset investment contracted 5.7% in the first half of the year. The property sector continues to weigh heavily, with home prices slipping again in June and property investment down 18% year-on-year. Wages have stagnated or declined in parts of the economy, and tens of millions of workers have shifted from formal employment into gig roles in delivery and ride-hailing, often with low pay and limited social protection. "There is a general consensus among policymakers and researchers that China needs to boost domestic demand," said Zhiwei Zhang, chief economist at Pinpoint Asset Management. "But there is no consensus on how to do it."

The human dimension of the slowdown is visible across different segments of society. A European-goods importer in eastern China says her income has roughly halved this year, while an apartment she owns has sat vacant for six months. A nurse in Guilin — a major city in Guangxi, one of China's fiscally weaker southern provinces — says her income has "fallen off a cliff" as local healthcare funding dries up, leaving her unwilling to spend on anything beyond necessities. Market analyst Fabien Yip told the BBC that businesses are absorbing rising energy and raw-material costs because consumer demand is "too weak to bear" higher prices.

Attention is now shifting to the Communist Party Politburo's monthly meeting later in July, where top leaders are expected to assess economic conditions and consider policy adjustments. However, with the first-half growth rate of 4.7% still within the annual target range, many economists believe the results reduce urgency for sweeping stimulus. The export picture, while currently strong, carries significant risks: a universal 10% US tariff on Chinese goods, imposed in February after earlier levies were struck down by US courts, is set to expire on 24 July and is widely expected to be replaced by higher rates. The US Trade Representative has proposed a 12.5% tariff following an investigation into forced labour, which Beijing denies, while the European Union is also tightening protections against Chinese competition. The ongoing war involving Iran adds further uncertainty to global growth and oil prices.

Many economists argue the core issue is not the pace of growth but its composition. China's reliance on exports and manufacturing to compensate for weak household consumption is drawing criticism from trading partners and is increasingly seen as unsustainable. As Macquarie Group's chief China economist Larry Hu put it, a meaningful shift in policy is likely to come only "when exports fail" — at which point Beijing would be compelled to do more to stimulate domestic demand.