China’s economy showed signs of slowing in the second quarter of 2026, weighed down by weak domestic demand and a persistent slump in the real-estate sector, according to official data and economic analysis.

Gross domestic product (GDP) grew 4.3% year-on-year in the April-June period, marking the slowest pace of expansion since the country emerged from the COVID-19 pandemic disruptions in late 2022. While export growth remained robust—rising 27% in June alone—this was insufficient to offset a 5.7% decline in fixed-asset investment during the first half of the year and stagnant retail sales.

A critical drag on the economy has been the real-estate market, where property investment plunged by 18% in the first six months compared to the same period in 2025, eroding household wealth and undermining confidence among consumers and businesses.

The sluggish domestic environment is forcing many firms to seek growth overseas. For instance, monthly car exports surpassed one million units in June for the first time, even as domestic vehicle sales fell for the ninth consecutive month, declining 23%. In Shenzhen’s tech sector, companies such as Elephant Robotics report that roughly 70% of their sales are from international customers, supplying products like industrial robotic arms used in educational programs.

Economists have emphasized the need for structural reforms in China to reduce reliance on manufacturing and exports and stimulate internal consumption. Beijing recently unveiled its first five-year plan aimed at boosting consumer spending, but some experts argue that the government’s measures are insufficient.

Alicia García-Herrero, chief Asia-Pacific economist at Natixis, suggested that the Chinese government prioritizes technological advancement over expanding consumer markets. “For that, the fact that people consume and go to the cinema doesn’t really help,” she said, highlighting the state’s focus on moving up the technological value chain rather than broadening domestic consumption.

Amid subdued domestic spending, companies have pursued aggressive price cuts, which have pressured profit margins and led to workforce reductions among major firms such as Alibaba and Baidu. Official data place urban unemployment steady at about 5%, but some economists believe the broader labor market challenges are more severe.

Li Daokui, an economist and professor at Tsinghua University, estimated China’s broader unemployment rate at 10.2%, accounting for individuals excluded from official tallies who have been jobless for at least two years. He noted that long-term unemployment now affects an estimated 24 million people, including 13 million youth aged 16 to 24, posing risks to social stability.

With formal employment opportunities limited, many workers have turned to gig economy roles such as food delivery and ride-hailing. Flexible employment in urban areas is anticipated to reach 320 million workers by 2026, comprising over 40% of the urban workforce.

Among those impacted is Xu Xiaoxue, a 33-year-old former data analyst who has been unemployed for four years after an unsuccessful entrepreneurial attempt. She recalled that before the pandemic, job openings were plentiful, but the current labor market is increasingly tight. “Companies were expanding a lot back then,” she said, “but now, basically everyone is downsizing.” Xu, currently based in her hometown Anhui province, plans to return to Shenzhen and remains willing to accept lower-paying positions to secure employment.

Frederic Neumann, chief Asia economist at HSBC, said the economy remains “highly imbalanced,” adding that recent months have seen this divergence between strong external demand and weak domestic activity become even more pronounced.