China Growth Slows As Domestic Demand Weakens

China's economic growth slowed sharply in the second quarter, exposing persistent weakness in domestic demand despite strong export performance. Gross domestic product expanded by 4.3 per cent between April and June, down from 5 per cent in the first quarter and below Beijing's revised annual growth target of between 4.5 and 5 per cent.

The expansion was China's weakest quarterly performance since late 2022, when the economy was emerging from strict Covid restrictions. Economic pressures have intensified since the Iran war began in February, with higher oil prices increasing energy and raw material costs for businesses. Weak consumer demand has limited companies' ability to pass these increases to customers, adding pressure to margins and highlighting an imbalance between industrial supply and domestic consumption.

China's property downturn remains another significant constraint on the economy. New home prices declined by 0.1 per cent in June, extending the prolonged weakness in a sector that has traditionally supported household wealth and investment. Consumer activity offered limited improvement, with retail sales rising by 1 per cent after contracting by 0.6 per cent in May. However, the recovery remains insufficient to offset wider structural pressures facing domestic demand.

Exports continue to provide crucial economic support. Overseas shipments increased by 27 per cent in June from a year earlier, driven partly by global demand for semiconductors supporting artificial intelligence data centres. Electric vehicle exports also strengthened, with monthly automobile shipments exceeding one million units for the first time.

The figures present Beijing with an increasingly complex policy challenge. Export strength is supporting manufacturing activity, but sustained economic growth will require stronger household consumption and greater stability across the property sector. With external uncertainty and energy costs adding further pressure, meeting China's reduced annual growth target may increasingly depend on policymakers stimulating domestic demand without deepening existing economic imbalances.