China’s economy expanded at its slowest rate in more than three years during the second quarter of 2026, as domestic demand remained weak despite a surge in exports driven by global artificial intelligence (AI) demand, official data showed Wednesday. The National Bureau of Statistics (NBS) reported a 4.3 percent year-on-year growth for April through June, missing economists’ expectations of 4.5 percent and falling short of Beijing’s official annual growth target of 4.5 to 5 percent—a level considered the lowest in decades.
The modest growth reflects ongoing challenges in the domestic economy, including a protracted crisis in the property sector and subdued consumer spending. Retail sales increased slightly by 1.0 percent in June, outperforming forecasts of a marginal decline, while industrial production rose 5.3 percent. However, fixed-asset investment contracted by 5.7 percent in the first half of the year, underscoring persistent weaknesses in key economic areas.
Experts identified the imbalance between robust export performance and weak domestic demand as a critical issue. Exports, particularly in high-tech sectors such as semiconductors and data-processing equipment, surged by 27 percent year-on-year in June, fueled by rising international demand linked to the AI boom. Semiconductor exports more than doubled in value compared to the previous year, although some analysts caution that part of this growth reflects rising prices amid chip shortages rather than increased volume.
Despite the export boom, the benefits have not sufficiently translated into stronger domestic consumption. Many Chinese consumers face income pressures, exacerbated by a property market downturn that has eroded household wealth and constrained spending. Youth employment remains a concern, although some improvement was noted as the youth unemployment rate fell to 15.6 percent in May from 16.3 percent in April.
Geopolitical tensions continue to cast uncertainty over the economic outlook. Naval conflict connected to the ongoing Middle East war has affected shipping routes critical for oil and gas supplies, while trade frictions with the United States and European Union persist. Although relations between Beijing and Washington stabilized somewhat following a summit between President Donald Trump and Chinese leader Xi Jinping in May, issues including tariffs and technology competition remain points of contention.
Analysts suggest that Chinese policymakers may intensify efforts to stimulate domestic consumption through fiscal measures, wage increases, and targeted support for frontline workers in the coming months. However, some experts argue that the government is likely to maintain its current policy course given the relatively strong growth in the first quarter and the continuing strength of export sectors. Several financial institutions, including Morgan Stanley and ANZ, have lowered their GDP growth forecasts for the year to around 4.6 percent, reflecting subdued expectations for recovery in the domestic economy.
Overall, the latest data highlight the structural challenges facing China’s economy as it balances external demand with efforts to revive household spending amid a landscape shaped by both domestic constraints and international uncertainties.