China’s economy recorded its weakest quarterly growth in three years during the April-June period, revealing a widening gap between booming exports and sluggish domestic demand. While overseas shipments of electric vehicles, batteries and semiconductors continue to power the country’s manufacturing sector, households remain cautious as the property crisis, weak consumer confidence and job uncertainty continue to weigh on spending.

Official data showed China’s gross domestic product (GDP) grew 4.3% year-on-year in the second quarter, slowing from 5% growth in the January-March quarter and falling short of market expectations. The latest figures suggest that exports alone are not enough to offset broader weaknesses in the domestic economy.

China’s exports remain a bright spot

China’s export sector continues to perform strongly despite global economic uncertainty.

Exports surged 27% in June compared to the same month last year, supported by rising international demand for:

• Electric vehicles (EVs)
• Semiconductor chips
• Batteries
• Artificial intelligence-related products
• Clean energy equipment

The country’s monthly trade surplus climbed above $125 billion, making it one of the highest on record. During the first half of the year, total exports increased by more than 20%, reinforcing China’s position as one of the world’s leading manufacturing hubs.

The global AI boom and accelerating clean energy investments have significantly boosted demand for Chinese technology products, providing a crucial cushion for economic growth.

Domestic demand continues to struggle

Despite strong export performance, consumer activity inside China remains weak.

Households continue to limit discretionary spending due to uncertain income prospects, slower wage growth and concerns about employment.

Retail sales showed signs of weakness after falling in May before posting only a modest recovery in June. Many consumers remain focused on saving rather than increasing purchases, reflecting ongoing uncertainty about the broader economy.

This imbalance between export growth and domestic demand has become one of the biggest challenges facing Chinese policymakers.

Property crisis continues to weigh on growth

China’s prolonged real estate downturn remains one of the largest obstacles to economic recovery.

The slowdown in the property sector has reduced construction activity, weakened household wealth and lowered consumer confidence.

Millions of families have seen property values decline, reducing their willingness to spend on non-essential goods and services.

The construction industry has also experienced significant job losses, affecting household incomes and limiting spending across many regions.

Economists believe stabilising the property market will remain essential for achieving a broader economic recovery.

Job uncertainty keeps consumers cautious

Employment concerns continue to influence household spending decisions.

Although manufacturing linked to exports remains relatively strong, opportunities in several other industries have weakened.

Many workers outside high-growth technology sectors are facing slower income growth, limited hiring and greater employment uncertainty.

Consumers have increasingly adopted cost-saving habits by:

• Delaying non-essential purchases
• Choosing lower-cost domestic brands
• Increasing personal savings
• Reducing discretionary spending

These behavioural changes reflect lingering concerns about financial security despite overall economic growth.

AI boom creates uneven economic gains

Artificial intelligence is helping drive China’s industrial expansion, but the benefits are not being shared equally across the economy.

Companies involved in AI, semiconductors and advanced manufacturing continue to attract investment and expand production.

However, workers employed in traditional industries have not experienced similar gains.

Economists say the country’s increasing focus on high-tech manufacturing has widened the gap between rapidly growing technology sectors and slower-moving parts of the economy.

Automation and industrial restructuring are also contributing to structural unemployment and underemployment in several industries.

Deflation pressures begin to ease

One encouraging sign for policymakers is the gradual improvement in price trends.

China’s GDP deflator, a broad indicator measuring prices across the economy, returned to positive territory during the second quarter after remaining negative for much of the past three years.

Higher global energy prices contributed to the improvement, although they also increased transportation and household expenses.

The return of positive price growth may indicate that deflationary pressures are beginning to ease, though consumer confidence remains fragile.

Government plans more support for growth

Chinese leaders have acknowledged the challenges facing the domestic economy.

The government has outlined plans aimed at:

• Boosting household consumption
• Supporting employment
• Encouraging retail spending
• Strengthening domestic demand
• Promoting sustainable economic growth

Officials are also exploring additional measures to stimulate consumer confidence and reduce reliance on exports for economic expansion.

Many economists believe further fiscal and monetary support may be needed if domestic demand does not recover more strongly during the second half of the year.

Outlook remains mixed

China’s latest economic data highlights two contrasting trends.

On one side, the country continues to dominate global manufacturing, particularly in artificial intelligence, electric vehicles and semiconductor production. On the other, weak household spending, a prolonged property downturn and employment uncertainty continue to limit domestic economic momentum.

Unless consumer confidence improves and the property market stabilises, exports alone may not be enough to sustain stronger long-term growth.

Conclusion

China’s economy continues to benefit from record exports and growing global demand for AI-related products, but the domestic recovery remains uneven. Weak consumer spending, the prolonged property crisis and employment concerns continue to slow overall growth despite manufacturing strength. The coming months will be crucial in determining whether government stimulus measures can restore confidence and create a more balanced economic recovery.

Frequently Asked Questions (FAQs)

1. How much did China’s economy grow in the second quarter of 2026?

China’s economy expanded 4.3% year-on-year during the April-June quarter, marking its slowest growth rate in three years.

2. Why is China’s economy slowing despite strong exports?

Weak consumer spending, the ongoing property market crisis, slower wage growth and job uncertainty are limiting domestic economic activity.

3. Which industries are driving China’s export growth?

Exports of electric vehicles, batteries, semiconductors and AI-related technology products are leading China’s export expansion.

4. How has the property crisis affected China’s economy?

Falling property values, reduced construction activity and job losses have weakened household wealth and lowered consumer confidence.

5. Why are Chinese consumers spending less?

Many households are worried about employment, income growth and financial security, leading them to save more and delay discretionary purchases.

6. How is artificial intelligence influencing China’s economy?

AI is boosting demand for high-tech manufacturing and exports but has also widened the gap between technology industries and traditional sectors.

7. Is China still experiencing deflation?

Deflationary pressures have started easing, with the GDP deflator returning to positive territory during the second quarter.

8. What steps is the Chinese government taking to support the economy?

The government plans to stimulate household consumption, strengthen employment, increase retail spending and introduce policies to support domestic demand.

9. Why are exports important for China’s economy?

Exports remain a major growth engine, particularly in AI, electric vehicles, batteries and semiconductor manufacturing, helping offset weaker domestic demand.

10. What is the outlook for China’s economy?

Economic growth is expected to remain supported by exports, but a stronger recovery will depend on improving consumer confidence, stabilising the property market and boosting domestic spending.