China’s economic growth hits slowest pace in more than three years

“In the first half of the year, the national economy operated within a reasonable range,” the NBS said in a statement.

China’s second-quarter economic growth slowed to its weakest pace in more than three years, highlighting ongoing challenges facing the world’s second-largest economy. Photo / Getty Images

“There are many unstable and uncertain external factors, and the domestic contradiction of strong supply and weak demand is prominent. The foundation for the economy to improve still needs to be consolidated,” it said.

The NBS data also showed retail sales grew 1% year-on-year in June, beating a Bloomberg forecast of a 0.1% drop.

And industrial production rose 5.3% last month, topping a Bloomberg estimate of 4.6%.

But in a gloomy sign, fixed-asset investment slid 5.7% on-year in the first half.

AI-driven export boom

Strong overseas demand for semiconductors and AI-related computing equipment has helped drive China’s export growth in recent months. Photo / Getty Images

Domestic demand dampened by low income expectations remains China’s “weakest link”, Yue Su of The Economist Intelligence Unit told AFP.

“We therefore expect policymakers to place greater emphasis on boosting consumption in the second half of the year and into early 2027” through fiscal stimulus packages, increased minimum wages or directing wage growth towards frontline workers, she said.

But analyst Zhang Zhiwei said the Government was unlikely to change its policy stance in the coming months as a result of the latest figures.

“We need to keep in mind that the first-quarter GDP growth was strong at 5%. This means the Government is still on track to deliver growth in line with the official [annual] target they set at 4.5-5%,” Zhang wrote in a note.

“The export boom just continues to beat expectations, and it will likely remain strong in the short term.”

The closely watched figures followed data on Tuesday that showed exports surged a forecast-topping 27% year-on-year in June as the global AI boom helped fuel demand for chips and computing equipment.

China’s semiconductor exports more than doubled in value in June year-on-year, while data-processing equipment shipments rose 53.1% from a year earlier.

But that expansion was “entirely a price story caused by the ongoing shortage of memory chips”, Julian Evans-Pritchard of Capital Economics said Tuesday, noting the volume of semiconductor exports fell year-on-year in June.

Weak consumer spending remains one of the biggest challenges for China’s economic recovery despite resilient export performance. Photo / Getty Images

Tensions with the United States and European Union remain a source of friction.

China remains locked in a trade feud with the EU, with which it recorded a trade surplus of US$32.9 billion ($56.6b) in June.

And while ties between Washington and Beijing have stabilised since US President Donald Trump visited Beijing in May, a trade imbalance and rivalry over chip production persist.

– AFP