China Q2 growth slows to 4.3% as weak domestic demand drags on export boom
Beijing's 4.3% second-quarter GDP growth misses its lowered target, highlighting a deepening split between a booming export sector and a sluggish domestic economy weighed down by property woes and rising oil costs.
China’s economy grew 4.3% in the second quarter, decelerating from 5% in the first three months of the year and falling short of Beijing’s official expansion target. The slowdown underscores the mounting pressure on policymakers to balance a resilient export sector against deeply entrenched domestic weaknesses.
The deficit is driven by weak internal demand and the ripple effects of the Iran war, which began on February 28. Elevated oil prices stemming from the conflict have effectively acted as a tax on consumers and businesses, compounding a prolonged property market slump.
Domestic data released on Wednesday painted a mixed but fragile picture of local consumption. New home prices contracted for another month, falling 0.1% in June, though the pace of decline eased slightly from May. Meanwhile, retail sales edged up 1% in June, a marginal recovery from a 0.6% contraction the previous month.
Offsetting these domestic headwinds is an export sector firing on all cylinders. Customs data released a day earlier showed June exports surged 27% year-on-year. This was powered by soaring global demand for Chinese semiconductors to supply artificial intelligence data centres, alongside a historic milestone for the automotive industry.
Monthly car exports topped one million units for the first time, driven by surging international appetite for Chinese electric vehicles. For investors, this bifurcation is critical: manufacturers tied to global tech and green energy supply chains are operating in a completely different macro environment than domestic consumer-facing businesses.
In March, Beijing lowered its annual growth target to a range of 4.5% to 5%, the weakest goal since 1991. Analysts view this reduced ambition as a deliberate move to give officials greater flexibility in managing the economy without being forced into aggressive, debt-fuelled stimulus.
The second-quarter figures confirm that this flexible approach is being tested. While export strength provides a floor under overall growth, the persistent weakness in retail and real estate suggests any sustained recovery will require prolonged structural adjustment rather than a quick policy fix.
