China's economy expanded by just 4.3% in the three months to June, one of its lowest quarterly readings on record, missing the government's target of 4.5% to 5%. The data, released by the National Bureau of Statistics on Wednesday, underscores the lopsided nature of the recovery, with exports surging while domestic demand falters.
Exports soar but domestic sales slump
Official customs figures for June showed exports increased by 27%, with monthly car exports topping 1 million for the first time. However, domestic vehicle sales plummeted by more than 16%, highlighting the economy's growing reliance on foreign markets. Retail sales, excluding cars, rose 3% last month, but economists say more sustained consumption growth is needed.
Fixed-asset investment declines sharply
Leading Chinese economist Li Daokui, an adviser to Beijing's senior leadership, warned that local governments have become bottlenecks rather than engines of growth. Fixed-asset investment, including spending on bridges, roads, and infrastructure, declined by over 4% between January and May. "The intensity and magnitude of this cumulative negative growth are unprecedented," Li said, according to Chinese media reports. He added that along with unemployment, the decline in investment must be given utmost attention.
Stimulus measures under consideration
Analysts are watching for any indication of new stimulus measures during a gathering of top Communist Party officials later this month. Economists say more extensive measures are needed to boost consumer spending and rebalance the economy away from exports, which account for about 20% of GDP. The last period of lower growth was the final quarter of 2022, when Covid-19 restrictions were still in place.
External risks loom
The US-China trade war is in a detente phase, but Beijing fears a resumption of tariffs when the truce expires in November could hurt exporters. The global economy is also under strain from the US-Israel war on Iran, which risks reducing demand for Chinese goods. Despite China's large energy stockpiles and diversified sources, a global recession would cause long-term pain for the export-driven economy. Overall first-half growth was 4.7%, within Beijing's target range, which may reduce pressure for large-scale intervention.
