China’s economy expanded more slowly than expected during the second quarter of 2026. Weak domestic demand limited growth, despite continued support from strong exports.
The latest figures also highlighted a growing imbalance between China’s export-driven industries and its struggling domestic economy.
China’s Q2 GDP Misses Expectations
China’s gross domestic product increased by 4.3% year-on-year during the April-to-June quarter, according to data released by the National Bureau of Statistics.
The result came below market expectations of 4.5%. It also marked a notable slowdown from the 5.0% growth recorded during the first quarter of 2026.
Furthermore, China’s economy grew at its weakest annual pace since the fourth quarter of 2022.
On a quarterly basis, GDP increased by 0.9%. Although this matched analysts’ forecasts, it was lower than the 1.3% expansion recorded in the previous quarter.
China Remains Within Its Annual Growth Target
During the first six months of 2026, China’s economy grew by 4.7%.
This performance remains within Beijing’s official annual growth target of between 4.5% and 5%. However, the sharp slowdown during the second quarter has increased concerns about the strength of the economy during the rest of the year.
China may still achieve its full-year target. Nevertheless, weaker consumer spending, declining investment and continued property market pressure create significant downside risks.
Strong Exports Support Economic Growth
Exports remained one of the main drivers of China’s economy during the second quarter.
Overseas demand stayed resilient despite ongoing disruptions across the global economy. In addition, businesses increased purchases ahead of possible supply interruptions linked to the conflict in the Middle East.
This forward buying provided further support to Chinese exporters during the past three months.
Industrial production also remained strong. Export demand for electronics and networking equipment continued to rise, partly due to expanding investment in artificial intelligence data centres.
As a result, China’s manufacturing and technology sectors performed better than many areas of the domestic economy.
Weak Domestic Demand Limits China’s Recovery
Despite strong exports, domestic demand remained subdued.
Private consumption continued to lack momentum, while spending by local businesses also slowed. Therefore, external demand was not strong enough to fully offset weakness within the Chinese economy.
The difference between resilient exports and weak domestic activity has become an increasingly important challenge for Beijing.
Without a stronger recovery in household spending and business investment, China may struggle to maintain balanced economic growth.
Beijing Could Introduce Additional Stimulus
The weaker GDP figures may increase pressure on Chinese policymakers to introduce further economic support.
Attention will now turn to a Politburo meeting scheduled for later in July. Investors will closely watch the meeting for signals on fiscal policy, consumer support and infrastructure spending.
ING analysts expect Beijing to introduce modest fiscal easing measures. These policies could focus on supporting consumption and accelerating approvals for local government special bonds and infrastructure projects.
According to the analysts, the sharp slowdown could encourage policymakers to take a more proactive approach in the coming months.
However, uncertainty remains over the scale and timing of any additional stimulus.
Industrial Production Beats Forecasts
Separate economic data for June showed that China’s industrial production increased by 5.3% year-on-year.
The result exceeded expectations of 4.7% and accelerated from the 4.5% growth recorded in May.
The stronger figure reflected continued demand for Chinese manufactured goods, particularly electronics and equipment linked to artificial intelligence infrastructure.
However, the positive industrial data contrasted sharply with weakness in investment and consumer activity.
Fixed Asset Investment Falls Again
Fixed asset investment declined by 5.7%, exceeding forecasts for a 5.0% decrease.
The indicator measures spending on property, infrastructure, machinery and other capital goods. It has now contracted for three consecutive months.
China’s prolonged property market downturn continues to weigh heavily on both public and private investment.
Falling property values, weaker construction activity and financial difficulties among developers have reduced confidence across the wider economy. As a result, businesses and local authorities have become more cautious about committing money to major projects.
Retail Sales Remain Sluggish
Chinese retail sales increased by 1.0% in June.
Although the result was better than expectations for a 0.1% decline, consumer spending remained weak overall.
Retail sales have now missed market expectations for three consecutive months. This trend suggests that Chinese households remain cautious despite government efforts to support consumption.
The latest data presents Beijing with a difficult challenge. China’s export industries remain competitive, but domestic demand, property investment and consumer confidence continue to struggle.
Further stimulus could help stabilise growth. However, a lasting recovery may depend on whether policymakers can encourage households and businesses to spend more within the domestic economy.
