China’s economy grew by 4.3 per cent in the second quarter of 2026, falling below the government’s annual growth target of 4.5-5 per cent, according to data released by the National Bureau of Statistics on Wednesday.
The slowdown was driven by weak domestic demand and higher oil prices triggered by the Iran war, which offset the country’s robust export performance.
Despite a surge in exports, particularly in semiconductors and electric vehicles, sluggish consumer spending and a prolonged property market downturn continued to weigh on overall economic growth.
The latest figures cover the first full quarter since the Iran war began on 28 February and represent China’s weakest quarterly economic growth since late 2022, when the country was emerging from its stringent Covid-19 restrictions.
“These are more external instability and uncertainty factors,” China’s National Bureau of Statistics said in a release accompanying the figures.
Despite these challenges, China’s exports remained strong, rising 27 per cent in June compared with a year earlier, driven by booming global demand for semiconductors used in AI data centres and record exports of electric vehicles.
Analysts said the latest figures underscore China’s continued reliance on manufacturing, with efforts to boost domestic consumption yet to deliver meaningful results.
Fabien Yip, market analyst at IG in Sydney, told Reuters: “Growth is still very much powered by manufacturing. What the government wanted to achieve earlier this year, when it set the GDP target, it actually wanted to improve consumption... That story hasn’t really played out yet, and it’s also been a bit disappointing that there hasn’t been a lot of strong stimulus packages.
“There’s a bit more pressure on the government to put out more material support for the market.
“Unfortunately, I still see the consumer sector as well as domestic demand at a pretty fragile stage for now... so far, we’ve not had any rate cuts from the central bank. While they talked about being nimble and there is flexibility to cut rates, we haven’t really seen significant moves from the central bank, so I think that will also come into focus later in the year.”
Junyu Tan, North Asia economist at Coface in Hong Kong, said the second-quarter data highlights a widening gap between China’s strong export performance and weak domestic demand.
While exports continue to be driven by robust global demand for AI hardware and green technology, the domestic economy remains weighed down by the prolonged property market slump, Mr Tan noted.
He said that although June data pointed to some stabilisation, with retail sales supported by trade-in subsidies and a slight slowdown in the decline of fixed investment, the recovery is unlikely to be sustained “without swifter policy action”.
He added that Beijing could accelerate the issuance of special local government bonds or introduce new financing tools to support investment, while the People’s Bank of China may be forced to cut interest rates sooner than expected if credit growth and investment momentum continue to soften.
