China’s Economy Slows to Weakest Pace Since 2022
China’s economic growth in the second quarter expanded at its slowest pace since the fourth quarter of 2022, according to data released Wednesday by the National Statistics Bureau. Gross domestic product (GDP) grew by 4.3% between April and June, falling short of the 4.5% forecast by economists in a Reuters poll and declining from the 5% growth recorded in the first quarter.
The second-quarter performance fell below Beijing’s full-year growth target range of 4.5% to 5%, which is considered the country’s least ambitious goal in decades. The slowdown has intensified calls for government policy stimulus to address a deepening slump in investment and persistent weakness in domestic consumption.
Investment Slump Deepens Strain on Growth
A significant driver of the economic slowdown is a sharp decline in urban fixed-asset investment. Specific sectors saw substantial contractions:
- Real estate: 18% decline
- Infrastructure: 2.4% decline
- Manufacturing: 1.2% decline
Tianchen Xu, a senior economist at the Economist Intelligence Unit, attributed the steepening investment slump to local governments prioritizing debt restructuring and a shortage of viable projects. Li Daokui, a professor of economics at Tsinghua University and a former central bank advisor, described the pullback in investment as “unprecedented.” He has called for a substantial expansion in government borrowing, suggesting that authorities should more than double the current plan for 12 trillion yuan ($1.7 trillion) in new debt issuance.
Trade Tensions and Export Resilience
While domestic indicators remain strained, exports have emerged as a primary bright spot for the Chinese economy. June export growth reached its strongest level since late 2021, bolstered by global demand for chips, computers, and power equipment related to the AI infrastructure boom.
However, this export strength has created friction with international trade partners. Larry Hu, chief China economist at Macquarie, noted that China’s surplus with the European Union widened by 24% in the first half of the year, primarily due to shipments of machinery and vehicles. Despite a recent three-month trade truce, Hu warned that the growing surplus keeps the risk of a trade conflict with the EU elevated. Additional headwinds include ongoing tensions with the United States and the impact of the conflict in the Middle East.
The Outlook for Stimulus and Consumption
Policymakers are currently grappling with an “acute” imbalance between excess supply and sluggish domestic demand. While retail sales in June grew by 1%, rebounding from a 0.6% decline in May, the broader consumer landscape remains subdued following a long period of tepid demand and steep merchant discounting.
Economists remain divided on how Beijing will respond to these figures. Some, such as Tianchen Xu, expect the government to ramp up stimulus measures in the third quarter, potentially including a policy rate cut to encourage investment. Conversely, Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, suggested that the weaker headline growth might not trigger a significant policy shift, noting that a strong first quarter and resilient exports keep the annual growth target within reach.
David Chao, a global market strategist at Invesco, added that the better-than-expected data in industrial output—which expanded 5.3% in June—and retail sales could provide policymakers with more “wiggle room” regarding the timing and intensity of near-term stimulus measures. As the economy navigates a prolonged property downturn and volatile energy prices, the government is being urged to step up “counter- and cross-cyclical adjustments” to stabilize growth.
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