China’s growth just hit a 3-year low: here’s what’s really driving it

China’s economy expanded at an annualised 4.3% in the April-June quarter, official data released on Wednesday showed, down from 5% in the January-March quarter and below forecasts. It is the country’s slowest pace of growth in more than three years, even though exports kept climbing through the same period.

Customs data showed outbound shipments rose 17.6% in the first half of the year compared with the same period a year earlier, while exports climbed 27% in June alone. Growth was supported in part by the artificial intelligence boom and strong overseas demand for Chinese electric vehicles. China has also largely avoided the broader economic fallout from the Iran war, even as higher energy prices added to inflationary pressures globally.

That export strength has not translated into a recovery at home. Consumer spending and investment remained weak, reducing the overall impact of export-led manufacturing on growth. Economists say the economy is becoming increasingly uneven, with government support and private capital continuing to flow into advanced sectors such as artificial intelligence, robotics and semiconductor manufacturing, while lower-value manufacturing and service industries that generate large numbers of jobs continue to lag.

Mao Shengyong, deputy head of China’s National Bureau of Statistics, told reporters that ‘given the increasingly unstable and uncertain global situation, the imbalance between strong supply and weak demand remains acute.’ He said China would continue pursuing ‘higher-quality economic growth’ through high-tech manufacturing while also focusing on building a stronger domestic market and supporting stable employment.

Wei Li, head of multi-asset investments at BNP Paribas Securities (China), described the economy as undergoing a ‘significant transition.’ Chinese leaders have set a growth target of between 4.5% and 5% for 2026, lower than last year’s 5% figure. The International Monetary Fund recently raised its forecast for China’s 2026 growth by 0.2 percentage points to 4.6%, while projecting growth will ease further to 4.1% in 2027.

Last year China recorded a global trade surplus of $1.2 trillion, the highest on record, a figure that has drawn criticism from policymakers in other countries who argue generous state subsidies have created excess manufacturing capacity, with the surplus goods exported to overseas markets. At home, household spending has stayed under pressure as families hold back on major purchases amid a prolonged property market downturn and continuing uncertainty over wages and employment.

Image credit: Wikimedia Commons/by Ermell